Dividend stocks are a cornerstone of many investors' portfolios, offering a steady stream of income and the potential for capital appreciation. However, in a market filled with options, selecting the right dividend stocks is important to maximise returns.
Today, we highlight three stocks that analysts have rated as Strong Buys. These stocks (VICI Properties, American Tower and Royal Bank of Canada) offer compelling investment arguments. But which one stands out as the best choice? TipRanks' Dividend Stock Comparison tool to take a closer look, analyzing their value propositions, growth potential and revenue opportunities.
VICI Properties: betting on experiences rather than goods
We start with VICI Properties (VICI)a real estate investment trust (REIT) specializing in the ownership and acquisition of gaming, hospitality and entertainment destinations. The company was formed in 2017 as a spin-off of Caesars Entertainment and has since grown to become one of the largest REITs in the gaming industry, with a market capitalization of over $35 billion.
Additionally, VICI’s portfolio consists of high-profile properties in Las Vegas and other key markets in the United States, including notable assets such as Caesars Palace, MGM Grand and Mandalay Bay. The New York-based company generates the majority of its revenue through single-tenant, triple-net leased properties.
Over the past year, the stock is up 8%, but it has performed particularly well since July, up about 10%. This outperformance versus the broader market can be attributed to strong financial results (revenue grew 6.6% year-over-year to $957 million in the second quarter) and a notable trend. Specifically, the trend is the secular shift away from discretionary spending on material goods and toward experiences—the company's motto is actually “Investing in the Experience.”
As a result of its recent strong performance, management decided to increase dividend payments by 4.2% to $0.4325 per share on a quarterly basis. In turn, this gives us a forward dividend yield of 5.15%.
From a valuation perspective, VICI’s forward price/AFFO ratio is 15.1x. Notably, this figure is below the industry average of 16.8x and the company’s seven-year average of 16.2x.
On TipRanks, VICI is listed as a Strong Buy based on eight Buy, two Hold and zero Sell ratings assigned by analysts over the past three months. VICI Properties Average Share Price Target is $33.64, implying an upside potential of 0.21%.
American Tower: Connecting the world, one tower at a time
Moving on to another contender, American Tower Corporation (AMT) American Tower is another REIT and one of the largest owners and operators of wireless communications infrastructure in the world. Founded in 1995, American Tower has established itself as a cornerstone of the telecommunications industry.
Additionally, with a portfolio of more than 224,000 communications sites spanning 25 countries on six continents, the Boston-based company’s assets include cellular towers, rooftop antennas and small cell networks. These assets are leased to major wireless carriers, broadcasters and other communication service providers. Its business model is based on long-term, non-cancellable leases (typically five to ten years) with top-tier tenants, providing a stable and predictable revenue stream.
Like VICI, the business is performing well, with total property revenue growing 6.9% year-over-year on a currency-neutral basis. The company also boasts an EBITDA margin of 62.5%, outperforming the REIT sector average of 53.6%.
To drive its growth, American Tower Corporation has focused on both organic expansion and strategic acquisitions, steadily increasing its global presence, with particularly strong recent growth in Africa and Europe. In addition, the company has diversified into the data center business through its acquisition of CoreSite, which has provided it with some exposure to the burgeoning artificial intelligence (AI) segment.
In terms of dividends, American Tower isn't a big dividend payer, with a forward dividend yield of 2.67%. However, it's well covered with a 61% payout ratio based on projected 2024 AFFO. From a valuation perspective, it doesn't scream “value” either, with a forward P/AFFO ratio of 22.8x versus the industry average of 16.8x. Its fundamentals are solid, though, with a net debt/EBITDA ratio of 4.8x as of Q2 2024.
Similarly, on TipRanks, AMT is listed as a Strong Buy based on 10 Buy ratings, one Hold and zero Sell ratings assigned by analysts over the past three months. Average target price for AMT shares is $240.70, which implies an upside potential of 1.50%.
Royal Bank of Canada: betting on growth and stability
Finally, there is the Royal Bank of Canada. (River)One of Canada’s largest and most prominent financial institutions, with a rich history dating back to 1864, it is a universal bank with operations in retail and commercial banking, wealth management, insurance and capital markets. The group has established a significant global presence, ranking as the world’s tenth largest investment bank by fees.
Recent financial results demonstrate the strength of RBC's business model, with net income up 7% year-over-year, despite a slight decline in return on capital and increased provisions for credit losses. The bank's residential mortgage segment showed strong growth, up 10.2% year-over-year.
Like many of its peers, RBC's net interest income has benefited from high interest rates, with the retail and commercial banking segment posting a 15% increase compared to the previous year. Going forward, the banking group should be able to benefit from the unwinding of structural hedges.
Moreover, the stock offers a forward dividend yield of 3.4% (well covered by earnings) and trades at 13.8 times forward earnings, representing a 19.4% premium to the sector. However, the forward price-earnings-growth (PEG) ratio currently stands at 2.06, representing a whopping 65.4% premium to the sector. This premium cannot be justified by the 3.4% dividend yield.
Similarly, on TipRanks, RY is listed as a Strong Buy based on 11 Buy, two Hold and zero Sell ratings assigned by analysts over the past three months. Average target price for RY stock is $125.35, which implies an upside potential of 1.68%.
The final verdict
While these stocks have their merits, they all trade very close to their target prices. VICI Properties offers a strong case with its focus on gaming and entertainment, benefiting from a secular shift toward experiences rather than material goods, strong financial performance, and attractive valuation metrics below the sector average. American Tower, with its extensive global telecommunications infrastructure and expansion into AI-related assets, presents growth potential, but at a higher valuation. Meanwhile, Royal Bank of Canada provides stability and revenue growth in the financial sector, but trades at a premium that could limit upside. My preference would be VICI, as I strongly believe this secular shift away from material goods and toward experiences will continue over the medium term.