Dividend investors are currently facing challenges due to the high valuations assigned to stocks in general. The S&P 500 index, for instance, currently displays a modest dividend yield of 1.3% despite a recent market downturn. In comparison, Citigroup presents a more attractive option with a 3.8% yield, outperforming the average bank yield of approximately 2.6%. However, investors should not limit their considerations to Citigroup alone, as there are lesser-known financial stocks offering higher yields and potentially more appealing business prospects.
Citigroup not only offers an above-market and above-average dividend yield for banks but has also increased its dividend by over 1,000% in the past decade. This impressive growth raises questions about its historical context. Back in early 2016, Citigroup’s dividend stood at a minimal $0.005 per share per quarter, a figure that allowed institutional investors with dividend requirements to maintain their holdings. By the end of 2024, the quarterly dividend had grown to $0.56 per share. The reason behind Citigroup’s low dividend in 2016 can be traced back to the aftermath of the Great Recession, during which the company significantly reduced its dividend payout. The substantial increase seen since then represents a recovery of the dividend, which still lags behind its pre-recession levels, similarly reflected in the stock price.
For conservative dividend investors, there are potentially better alternatives than Citigroup. Despite the company’s improved financial health today, its struggles during the Great Recession might raise concerns for those prioritizing reliability. Reliable dividend stocks such as Realty Income and Federal Realty present higher yields and consistent payment histories. Realty Income, a net lease real estate investment trust (REIT), focuses on single-tenant retail properties with a current yield of 5.8% and a history of annual dividend increases over the past three decades, spanning economic downturns like the Great Recession and the dot-com crash. With an investment-grade-rated balance sheet and extensive portfolio across North America and Europe, Realty Income boasts growth opportunities through industry consolidation, strategic acquisitions, and access to capital markets.
Another strong option is Federal Realty, known for its unparalleled dividend consistency among REITs, with 57 consecutive years of dividend increases. Specializing in strip malls and mixed-use properties, Federal Realty weathered economic milestones such as the coronavirus pandemic, Great Recession, and past financial challenges dating back to 1967. Unlike Realty Income, Federal Realty emphasizes quality over quantity, owning around 100 properties in prime retail locations with higher average population sizes and incomes. Despite having a slightly lower yield of 4.9%, Federal Realty’s robust track record makes it a distinguished option compared to Citigroup.
Although Citigroup is well-known and offers a high yield, it may not be the best fit for an income-focused portfolio, particularly given its past challenges during the Great Recession. Investors might find greater security in stocks like Realty Income and Federal Realty, which offer reliable yields and stronger dividend records, even if they lack the same level of brand recognition.
