The Smartest Dividend Stocks to Buy With $500 Right Now

Key Points

• Realty Income has been very selective in making new investments in the current environment.

• EPR Properties is limiting its investment rate to $200 million to $300 million this year.

• W.P. Carey doesn't currently plan to issue new equity to fund property investments in 2025.

• 10 stocks we like better than Realty Income ›

Interest rates can significantly impact certain types of dividend stocks. Real estate investment trusts (REITs) are highly rate-sensitive. Their values tend to decline as rates rise and rally as rates fall due to the impact these changes have on their businesses.

Many expect the Federal Reserve to resume its rate cuts soon, which bodes well for REITs because lower rates can reduce borrowing costs and support higher property values. Realty Income (NYSE: O), EPR Properties (NYSE: EPR), and W.P. Carey (NYSE: WPC) are three of the smartest ones to buy with $500 right now.

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Ready to ramp up

Realty Income is less sensitive to interest rates than many REITs due to its elite balance sheet and diversified global operations (retail, industrial, gaming, and other properties across the U.S. and Europe). That allows it to borrow money at lower rates than many of its peers. For example, it recently issued euro-denominated notes at interest rates of 3.375% and 3.875%. That enabled it to buy more income-generating properties in the quarter.

The company currently anticipates investing $5 billion this year. Although that's an increase from its initial outlook of $4 billion, it is still below its peak of over $9 billion annually when rates were lower. Realty Income is being intentionally selective, closing only 2.7% of the $43 billion in deals it sourced in the second quarter as it maintains a disciplined approach to maximize its returns while navigating its currently higher capital costs.

Falling rates could enable Realty Income to access more low-cost capital and increase its growth rate. Faster growth could boost the company's valuation. In the meantime, investors who buy now can lock in a nearly 5.5% dividend yield, turning a $500 investment into about $27 in annual dividend income.

Holding back until rates fall

EPR Properties currently expects to invest between $200 million and $300 million this year in new properties. This moderate investment pace reflects a disciplined approach designed to maintain financial stability by utilizing only post-dividend free cash flow, non-core property sales, and its balance sheet resources within its current leverage ratio. This strategy enables the experiential property REIT (which includes theaters, attractions, and similar properties) to grow its funds from operations (FFO) per share and dividend at a 3% to 4% annual rate.

EPR is maintaining a conservative investment pace due to the current high cost of capital. Lower interest rates should reduce this cost, enabling EPR to increase its investment rate.

The REIT shouldn't have any shortage of future investment opportunities. It estimates there's a more than $100 billion investment opportunity for experiential real estate. That could enable it to grow its FFO and more than 6%-yielding dividend even faster in the future.

Ready to hit the accelerator

W.P. Carey is also exercising caution with its investment rate this year, targeting a volume between $1.4 billion and $1.8 billion. This range reflects a balancing act. The REIT aims to fund all investments using only post-dividend free cash flow and asset sales. This approach avoids the need for potentially dilutive equity raises and protects shareholders in the current environment.

The REIT has already secured $1.3 billion of new investments this year, putting it well on its way to hitting the high end of its investment volume guidance range. As a result, it's on pace to grow its adjusted FFO per share by 4.5% this year.

Falling rates could give W.P. Carey confidence to invest beyond its current guidance, supporting faster FFO and dividend growth. The REIT has increased its payout by 3.4% over the past year and seeks to grow its dividend, which yields over 5%, in line with FFO growth.

Poised for faster growth

Higher interest rates have previously limited how aggressively many REITs could invest in expanding their portfolios. However, with rates poised to start falling in the coming months, these top REITs are in strong positions to accelerate growth. This makes investing $500 in them look like a smart move right now.

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Matt DiLallo has positions in EPR Properties, Realty Income, and W.P. Carey. The Motley Fool has positions in and recommends EPR Properties and Realty Income. The Motley Fool has a disclosure policy.