Producing 100% Total Returns From Busted Dividend Stocks

Bear Market, Dividend Cuts, Real Estate Investment Trusts (REITs)

In the early days of the coronavirus pandemic, hundreds of companies slashed common stock dividends. Many saw business operations significantly affected and did not have the cash to pay the previous dividend rate. Others chose to cut dividends as a defense against a suddenly uncertain future. In both cases, income-focused investors were devastated as share prices crashed and dividend payments were slashed.

As business slowly emerge from the uncertainties of early 2020, I have divided the list of high-yield stocks for my Dividend Hunter service into two groups. One is those companies that sustained dividends through the crash. The second group is those companies that cut dividends, but that my research shows can quickly resume higher dividend payments and dividend growth.

While I appreciate the steady and predictable dividends of the first group, at this point in the stock market pricing cycle, I find the second group to be very intriguing. Investors hate dividend cuts, and this group of stocks that reduced dividends remain tremendously out of favor. The investing world continues to look backward and not forward to when dividends will be increased.

As these busted dividend companies reach the point at which they’ll be able to increase dividend rates again, the potential is there to produce 100% total returns over the course of just a couple of years. Here are three stocks that should double as dividends are increased or resumed:

It’s not surprising that the hotel real estate investment trusts (REITs) slashed dividends. Lodging REITs are one REIT sector that participates in the profitability of the properties they own.

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In March, RLJ Lodging Trust (RL) slashed its quarterly dividend from $0.33 per share down to just one cent per share.

The pandemic and related shutdown forced the closure of half of RLJ’s 103 hotels. During the second and third quarters, 36 of the closed properties reopened.

While the lodging industry still suffers from a lack of business travel, I expect RLJ to start growing its dividend in early 2021.

In March, finance REIT New Residential Investment (NRZ) slashed its dividend by 90%, going from $0.50 per share to $0.05 per share. In June, the company started its dividend recovery, declaring a $0.10 dividend that was paid at the end of July.

For the 2020 second quarter, New Residential reported core earnings of $0.34 per share. Third-quarter results, when they come out, will be even stronger.

The only question about the New Residential dividend is how quickly the company will raise the rate. Will they stay with the five cents-per-quarter increases, or with business back on track, will they announce a big dividend boost later this month?

After 30 years of dividend growth outlet mall REIT Tanger Factory Outlets (SKT) suspended its dividend in May. The rate had just increased in January before the pandemic landed in the U.S.

In its 2020 second-quarter earnings report in early August, Tanger reported that almost all of its shopping centers and stores had reopened, and the company was cash-flow positive in July.

Investors truly hate Tanger, and the share price is down 61% year-to-date. But the REIT rules could be the force to get dividends restarted, and there’s potential for a share price double.

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