How You Can Beat the Yields on near 5% Treasuries, plus Upside

Key Points

• With the economy beginning to turn, the FED's campaign to raise rates has made government yields all the more attractive. However, there is a way you can get an even sweeter deal.
• Now that the worst-case scenario has been priced in, this curated list of reliable dividends and reasonable upside will give your portfolio the balance it needs to make it through this quarter. 
• Analysts are sticking their necks out on this one; don't take it for granted.

With inflation across the United States proving to be more persistent than initially thought and the FED raising the cost of financing in myriad products from new homes to car loans, it is more important than ever for your money to really crank up the sweat factory.

An excellent place to start is the classic benchmark for 'risk-free' returns, otherwise known as the ten-year United States government bond. Lending money to the government is one of the safest endeavors since the risk of loss is tied to the risk of the country going bankrupt.

Currently paying close to a 5% annual yield, these bonds have become highly competitive, so the homework has been done to bring you a list of stocks that compete with these rates and offer some additional upside for your troubles.

Healthpeak Properties

Real estate is one of those sectors that typically move in lockstep with the underlying economy, and when it comes to real estate stocks, REITs (real estate investment trusts) usually carry the crown, offering attractive dividend yields and sufficient price stability.

Healthpeak Properties NYSE: PEAK offers investors a 6.7% dividend yield, beating the government bond yields and a significant upside considering the stock is trading at prices not seen since the financial crisis of 2008.

Analysts see a particular potential in this company. Otherwise, they would disagree on a consensus price target of $26.4 a share, implying the stock needs to jump by as much as 48.2% from today's prices to meet these levels. 

During the latest quarterly results, the company reported a net sales increase of 5.3%, which outpaced the inflation rate during the year and placed the REIT in a leading position.

The portfolio also achieved a near 8% ROE (return on equity) during the past twelve months, which is a leading indicator of potential stock price performance in the future. While this all sounds pretty neat, why is the stock down by 30% year-to-date?

One of the main drivers of REIT stock prices is the combined per-share value of the properties held in the fund, so property value compression is bringing you a value gap on a silver platter.

This is good news since, as properties start to bottom out for the REIT, any subsequent possibility of recession is likely already priced into the stock today. It tilts the risk-to-reward scale heavily in your favor, with a nice dividend income to top it off.

Realty Income

Considered one of the highest-quality dividends in the REIT space, Realty Income NYSE: O has quickly entered the list of high dividend yields suitable for beating the rising bond offerings. 

Apart from offering a tremendous deal today, in the form of an annualized dividend yield of 6.3%, other tailwinds are pushing this stock into the double-digit hitter category, so get your pencils sharpened.

The stock trades today at prices not seen since the great recession in 2008, excluding the brief COVID-19 sell-offs. The reason behind the dismal decline? You should be familiar with REIT valuation by now; the price of the underlying properties has been compressed temporarily.

Are there reasons for concern? If you genuinely believe that companies like Walmart NYSE: WMT and Starbucks NASDAQ: SBUX are going fully digital - or out of business - in the foreseeable future. 

Considering that, while expanding heavily into its digital presence, the business expansion that Starbucks plans to undertake still requires physical locations. And this is only one of more than 1,300 clients to which Realty leases its properties.

Bears will scream that this is a dying business, while the stock's track record will show a compounded annual total return of 14.2% per year since the IPO in 1994. Analysts are recognizing this undeniable momentum and strength, and rightly so.

With a consensus price target of $67.3 a share, Realty Income stock would need to increase by as much as 37.5% to be at its justified valuation.

Since management has already placed $4.8 billion into acquisitions in 2023, the added rental income and property values will be a sure tailwind for the stock's performance in the coming months. 

Brookfield Infrastructure Partners

Investing in infrastructure is always a good idea since society as we know it would only function properly with it. How safe is this potential asset class? You can start by asking Brookfield Infrastructure Partners NYSE: BIP. 

This REIT has increased its revenues by as much as 15.6% yearly, the biggest jump in this small group. Beating inflation is one thing: delivering double-digit growth during a year where most of the real estate sector saw their capital flows dry up would be - as they say - bullish.

How bullish, you may ask? Analysts suggest a value gap of 57.6% from today's prices; how is that for a 'boring' setup of infrastructure investments?

What about the yield? Is that different from the reason this list was created, to beat the increasing generosity from the government? A 5.6% annualized yield answers the question with a big enough echo that this deal looks too good to be true.

However, proper investing is typically filled with deals like this one, where the risk/reward scale is heavily tilted to favor the allocator. Trading at a fresh 52-week low, this stock's upside - and yield - is moving up quickly.