Personal Finance

Start 2017 off Right with 2 Great Dividend Stocks

Dlr Trends

It is my general opinion that investing in high-quality dividend stocks with the potential for growth is the best path to stock market wealth. However, not all dividend stocks are the same. Here are two in particular -- one real estate investment trust, or REIT, and one bank -- that could be excellent additions to your portfolio as we head into 2017.

Dlr Trends

Image Source: Digital Realty Trust

Because of this growth, Digital Realty has grown its FFO per share at a 13.1% annualized rate, including strong growth during the great recession. As a result, its dividend (which only represents 62% of its 2016 core FFO) has more than tripled in that time. With a strong balance sheet and high occupancy levels, there's no reason to believe the company won't continue its market-beating performance in the coming years.

The worst performing bank of 2016

Despite the financial sector rising 20% in 2016, New York Community Bancorp (NYSE: NYCB) fell by about 3%, making it the worst-performing big U.S. bank stock of the year.

NYCB data by YCharts

However, the bank's business is completely fine. It's still the leader in its niche market of lending on rent-controlled apartment buildings in New York City. The reason for the poor performance? Well, at first, investors weren't thrilled about the proposed merger with Astoria Financial , as it would not only push NYCB over the $50 billion regulatory threshold, but was sure to compromise the bank's efficiency and asset quality -- its key competitive advantages. And, the merger meant that the bank was sure to cut its high dividend.

Then, in December, the merger agreement was surprisingly called off. I was delighted by this news -- after all, as a shareholder myself, I like New York Community Bancorp just the way it is. The market apparently disagreed, as the bank gave up all of its "Trump rally" gains in the latter weeks of the year.

It's understandable that the uncertainty caused by these developments would worry investors, but I look at this as a major buying opportunity for a bank that has one of the most rock-solid business models in the industry, not to mention a generous 4.2% dividend yield.

Invest for the long term

To be perfectly clear, I'm suggesting both of these as long-term investments. Over shorter periods of time (say, five years or less), investors are better off looking elsewhere. For example, while rising interest rates in the coming years could be great for NYCB, they could potentially be terrible for Digital Realty's stock price. Similarly, a recession could send the entire banking sector lower, even if it doesn't have much to do with the health of the banking sector, or NYCB in particular.

The point is that both stocks have some major risk factors, but most of them apply to the short-term. Over the long run, these companies both have winning business models that should produce excellent returns for shareholders, as they have in the past.

10 stocks we like better than New York Community Bancorp

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and New York Community Bancorp wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Matthew Frankel owns shares of AT and T, Digital Realty Trust, and New York Community Bancorp. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More