Dividend stocks are some of the best stocks to buy and hold forever, thanks to the power of dividend growth. But not all dividend stocks offer the long-term reliability that many investors seek. The key is to choose stocks that offer attractive yields today but still have room to grow and which can maintain their dividends over the long haul.
Three Motley Fool contributors believe you can find all that and more in Alexandria Real Estate Equities (ARE -2.30%), Brookfield Asset Management (BAM -3.09%), and Blackstone (BX -2.54%). Here’s a closer look at each of these, and why they offer dividend reliability.
Business innovation and ever-expanding dividends
Kristi Waterworth (Alexandria Real Estate Equities): If I could only choose one top dividend stock to buy and hold forever, it would be Alexandria Real Estate Equities. Its business model is designed to break down barriers and spur innovation, and the leadership is continually looking years into the future when making decisions.
Alexandria Real Estate Equities is a real estate investment trust (REIT) that develops and leases space to a wide range of life science and STEM-focused businesses. But unlike a lot of medical or tech landlords, Alexandria uses a model called “clustering,” in which it purposefully creates large campuses that are occupied by a variety of different companies in the sector.
The idea is to encourage collaboration between companies that are similar, like biotechs, and even those that are more different, like technology and pharmaceuticals companies. Since its initial public offering in 1997, Alexandria has been working toward this goal; it now has large campuses stretched across the country, and only continues to grow.
During the first half of 2022, for example, the REIT acquired a total of 32 new properties in markets like Boston, San Francisco, San Diego, Seattle, North Carolina’s Research Triangle, and Texas. In the second quarter, Alexandria placed over 375,000 new rentable square feet (RSF) into service, and it kicked off development of over 900,000 RSF in that same period.
The demand for Alexandria campuses is overwhelming. Even the barely started space is already filling up, with pre-lease space commitments ranging from 29% to 100%, depending on the location. Current tenants are also hanging around and even expanding their footprints. In the second quarter, the company leased approximately 2.28 million RSF, 87% of which was to current tenants and other businesses Alexandria already had relationships with.
For investors, this is great news. The dividends coming from Alexandria have grown as the business has expanded, and this business model is proving to work really well for life sciences and tech companies. Since 2010, dividends have increased yearly, from $1.50 that year up to $4.48 in 2021. At this rate, a yearly dividend of $4.69 for 2022 would not be a surprise.
With its careful stewardship and thoughtful innovations for a vital and growing segment, there’s no place I’d rather park my money than with Alexandria Real Estate Equities.
Betting on the jockey
Mike Price (Brookfield Asset Management): When choosing a company to hold forever, my main focus is on capital allocation. How will the management team adapt to various market cycles? Will they only buy back stock when it’s cheap? Will they take advantage of downturns to scoop up assets? Brookfield is an ideal way to bet on the future.
The asset management company owns real estate, private equity, infrastructure, renewable power, and various credit assets. It is run by value investing legend Bruce Flatt, and uses the same general philosophy in each asset class: Buy quality assets when they are underpriced.
Its fee revenues have more than doubled since 2018 to reach $1.95 billion in 2022. And, Brookfield’s carry eligible capital — which represents the capital “committed, pledged, or invested in the private funds” that the company manages and which entitle it to carried interest — has nearly quadrupled in that same time frame, skyrocketing from $47 billion in 2018 to $176 billion in 2022.
Brookfield benefits from its diversification of investments. When the economy is growing, it can borrow money and build infrastructure assets. When the economy turns, it can invest in distressed debt (especially through Oaktree Capital Management, another value-focused entity of which Brookfield owns 64%) and distressed properties.
Brookfield also has global diversification. When the U.S. market falls, its toll roads in India, electricity transmission lines in Brazil, telecom towers in New Zealand, and student housing properties in the U.K. could all pick up the slack.
This dividend stock not only adheres to the strategies of revered value investors, but is also attractively valued. It trades for 1.5 times book value, relative to a five-year average of 1.9, and 16 times earnings, half its five-year average of 32).
What’s more, Brookfield’s 1.4% dividend yield is nothing to sneeze at. The company has also returned a total of $1.3 billion to shareholders over the last 12 months, and will likely keep buying back shares as long as they’re undervalued.
Alternative assets growing at record speed
Liz Brumer-Smith (Blackstone): To buy a stock and want to hold it forever means you believe in the company’s business model and the long-term demand for its services or products. This is precisely how I feel about Blackstone, one of the world’s largest alternative asset managers.
Blackstone offers wealthy individuals and investment firms the opportunity to earn a higher-than-average return outside of the stock market by investing in alternative assets. The company manages investments for massive hedge funds, insurance companies, and institutional investors across a wide range of industries like real estate, private equity, and debt equity. In exchange, Blackstone earns a fee for its services.
Demand for services like these doesn’t just disappear. Blackstone’s clients need to have their money at work. Plus, most lack the reach or expertise needed to invest in alternative assets individually. The amount of Blackstone’s assets under management (AUM) has grown 153% over the last five years to nearly $100 billion. In the second quarter of 2022, its fee-related income rose 45% year over year to hit $1.02 billion.
Blackstone’s broad exposure to a diverse range of private industries and companies helps its clients avoid some of the volatility of the stock market, while still achieving market-beating returns. The company’s REIT-buying binge has helped expand its asset exposure for clients through strategic acquisitions. Notably, Blackstone owns and manages some of the fastest-growing and most successful private REITs and private funds in the market today.
The company is in a strong financial position with plenty of room to maintain and continue to grow its dividend, which currently yields around 6%. And while past results don’t necessarily predict future performance, Blackstone has managed to outperform its major competitors and the S&P 500 for the past 10 years.