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The Smartest Dividend Stocks to Buy With $400 Right Now

Motley Fool - Tue Nov 8, 2022

This is a good time to warm up to dividend stocks. Falling share prices and dividend hikes have created some tantalizing yields. You also don't need to invest a lot of money to start collecting those quarterly distributions. Even if you only have $400 to invest in stocks right now, there's no shortage of choices with healthy yields.

Camping World(NYSE: CWH) and Tanger Factory Outlet Centers(NYSE: SKT) are both high-yielding stocks with strong stories to tell. Here's why they'd make particularly smart dividend stock picks in today's challenging investing environment.

Someone looking out the window of a parked RV.

Image source: Getty Images.

Camping World

You might not think of the recreational vehicle (RV) industry as a hotbed for dividend payouts, but the leading retailer in this niche is generous about sharing the wealth. At its current share price, Camping World's quarterly dividend of $0.625 a share translates into a hearty 9.4% yield.

RVs became significantly more popular during the early part of the pandemic. With their usual travel options squashed by COVID-19 and their finances strengthened by federal stimulus, plenty of people thought: Why not buy a motorhome or towable so that we can travel safely across the country?

But it's now safer for most of us to travel as we used to again, so the dynamics in the RV market have naturally shifted. Beyond that, higher gas prices have made driving a house on wheels less appealing, and rising interest rates make financing an RV purchase a more costly proposition.

Camping World isn't performing at its best in this climate. The company reported its third-quarter results last week, and revenue declined 3% year over year. Margins are taking a hit as buyers turn to used RVs in search of better deals, and average selling prices -- which rose sharply last year -- are sliding. Adjusted earnings per share declined by 46%.

When profits go the wrong way, it can be scary for income investors, but Camping World's distributions seem safe for now, in part because the stock is so cheap. It's trading for less than 6 times trailing earnings and a still-reasonable 7 times next year's lower profit target. Camping World's debt may prove challenging in a climate of rising rates. And the nearly 7% decline in Good Sam Club memberships -- the Camping World-owned equivalent of AAA for RV owners -- was also problematic. However, I still think that a category leader with a single-digit P/E ratio and a 9.4% dividend yield is a good place to park some money.

Tanger Factory Outlet Centers

If you take your Camping World RV on a road trip, you just might at some point roll past one of the 38 deep-discount havens owned by Tanger Factory Outlet Centers. And after the 10% dividend hike management made to its quarterly payouts last month, that company's stock now yields 4.7%.

Buying into a mall-based real estate investment trust (REIT) could feel like a dicey proposition right now. Many people are holding back on their shopping expeditions as fears of a potential recession intensify. But I like Tanger in this environment. Its outlet centers are attractive to bargain seekers. The 600 brands occupying its 2,700 storefronts are loaded with closeouts and overstocked goods that were originally stocked at full price in traditional mall locations. You can expect Tanger's outlets to get busier as economic storm clouds form.

There's also plenty of room for management to continue boosting its distributions higher. Tanger raised its guidance for funds from operations last week, and its new forecast figure is more than double its current dividend payout. Occupancy rates continue to improve after the initial hit they took after COVID-19 struck, and sales productivity levels are holding up. The biggest risk with this stock is if the REIT's retail tenants falter in a softening economy due to weakness at their main-line non-outlet stores. That's a risk spread across various concepts, and it's not much of a red flag for a business model that has proven somewhat recession-proof in the past.

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Rick Munarriz has positions in Camping World Holdings and Tanger Factory Outlet Centers. The Motley Fool recommends Camping World Holdings and Tanger Factory Outlet Centers and recommends the following options: short December 2022 $24 puts on Camping World Holdings. The Motley Fool has a disclosure policy.

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