The stock market is always pumping out winners and losers, and stocks that are being punished now can quickly come roaring back if the conditions are right, so it's always tempting to buy on the dip -- when they're cheap -- but it can be challenging to do so successfully.
Of course, "cheap" is in the eyes of the beholder. Here are a pair of real estate stocks that look that way to me for now. They occupy strong positions in their segments, which themselves are well-positioned to continue to capitalize on two major trends: an aging population and the need for millions to make ends meet as costs grow in their household budgets.
There's a reason it seems like new dollar stores are popping up everywhere: Nearly a third of all store openings this year fit into that category, according to Coresight Research data out in September. Dollar Tree (NASDAQ: DLTR) is responsible for a big chunk of that, with plans to open 198 new Family Dollar and 393 new Dollar Tree stores before this year is a wrap.
As of July 31, the Fortune 200 company already operated 15,865 stores in 48 states and five Canadian provinces. The Chesapeake, Virginia-based firm did raise some eyebrows last week when it said it would begin selling some items for as much as $1.50 each, citing supply chain, labor, and inflation issues. While that might have riled some purists, the market apparently liked it, as the company's stock jumped 16% that day.
But there's still lots of growth potential here, it would seem. Dollar Tree stock was trading at $97.73 a share midday on Oct. 5, down 18.8% from its 52-week high of $120.37 reached on April 6.
Dollar Tree pays no dividend. Think of it only as a growth stock -- the company seems to itself. It bought $950 million of its own stock in fiscal 2021 so far, Dollar Tree said on Sept. 29 when it announced it had raised its share repurchase authorization by $1.05 billion to a new total of $2.5 billion.
Omega Healthcare Investors
Omega Healthcare Investors (NYSE: OHI) is a Hunt Valley, Maryland-based real estate investment trust (REIT) with a portfolio of 949 properties across the United States and United Kingdom, comprising 96,587 beds primarily net leased to 65 different operating partners, and a heavy emphasis on skilled nursing facilities (nursing homes).
OHI stock was at $29.74 a share in midafternoon trading on Oct. 5, 24.34% off its 52-week high of $39.31 from April 29 and up only 5.89% from its 52-week low of $28.08 from last Oct. 30. That's good for a yield of 8.89% based on a 12-month payout of $2.68 a share, a healthy payout that can keep the interest going in this healthcare REIT while waiting for its stock price to rally (and maybe hanging around after that, too).
OHI has kept that dividend rate at $0.67 per share for the past eight quarters, through the thick of the pandemic, despite occupancy problems and serious financial problems on the part of some of its operating partners.
Plus, much of its partners' income comes from government payments through Medicare and Medicaid, in addition to long-term care insurance and out-of-pocket payments by the residents of these facilities, a growing population of aging people for whom these are essential businesses, to say the least.
This Motley Fool writer deems Omega a "retiree's dream stock." That was on May 5, when it closed at $35.79 a share. At about $30 today, it's an even better buy.
Our Reuben Gregg Brewer does point out here that if the company doesn't raise its dividend by the end of the year, that will snap a streak of 18 years, ending its run toward becoming a Dividend Aristocrat. But that shouldn't cause nightmares for those willing to buy and hold.
The Millionacres bottom line
Omega Healthcare Investors and Dollar Tree are both slightly beaten-down stocks with solid, proven business models in essential businesses. Either or both would seem like prospective good buys for October. Cheap can be good, and these two may well bear that out.