At this time of falling interest rates, investors are once again wanting — or I should say, needing — to look for higher-yielding investments. Gone are the days of 5% Guaranteed Investment Certificates (GICs). These days, we are lucky to have achieved 3.5%, and this number keeps falling. This is where dividend stocks come in.
Here are two of the smartest dividend stocks to buy for those who don’t have that much money to invest.
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Northwest Healthcare Properties: A 7.36% yield
Northwest Healthcare Properties REIT (TSX:NWH.UN) is an owner and operator of a portfolio of medical buildings. This includes hospitals and healthcare facilities, medical office buildings, and clinics. Today, Northwest is trading below $5 and yielding 7.36% as it looks forward to benefitting from strong healthcare and demographic trends. Simply put, an aging population and strong immigration will continue to drive demand for healthcare properties.
In Northwest’s recent past, the company struggled with high debt loads and rising interest rates, which were causing interest expense to increase. This all came to a head last year, and the result of this was a slashing of Northwest’s dividend, a restructuring of debt, and a disposition program.
Today, the stock is still 66% lower than 2022 highs, but a few compelling realities provide reasons to be optimistic. The first is Northwest’s attractive yield, which makes it a prime candidate for passive-income generation. The second compelling reality of Northwest’s situation is its exposure to one of the strongest secular trends today: the aging population. While this trend hurts some industries, the healthcare industry is facing booming times because of it.
Finally, Northwest is in the process of fixing up its balance sheet. As of the third quarter of 2024, the company has paid down, refinanced, or extended $1.1 billion in debt and reduced its weighted average cost of debt significantly.
This leaves it well-positioned to profit from its high-quality portfolio of inflation-indexed assets characterized by long leases. This makes the cash flow profile of these assets quite stable and predictable. In Northwest’s case, its weighted average lease expiry is currently 13.4 years and 85% of the leases are subject to rent indexation.
Freehold Royalties: A dividend yield of 7.69%
The other dividend stock to buy is Freehold Royalties (TSX:FRU). Freehold is a Canadian oil and gas company that’s engaged in the production and development of oil and natural gas. The trust’s objective is to “deliver growth and lower risk attractive returns to shareholders over the long term.”
One way that Freehold does this is through its large and diversified portfolio of royalty assets. In fact, Freehold has interests in more than 18,000 producing wells from over 380 industry operators. Freehold incurs none of the operating costs or capital investment expenses; it simply receives a percentage of production.
Freehold has done well in recent years, as average oil and gas prices have been strong. Today, Freehold’s dividend yield is a generous 7.69%, and the company benefits from strengthening natural gas prices and oil prices of approximately $70.
The bottom line
Both Northwest Healthcare Properties and Freehold Royalties are high-yield stocks that trade at reasonable prices, making them ideal places to park $1,000 today. They are, in fact, two of the smartest dividend stocks to buy.
