Bull Market Buying: 3 S&P 500 Dividend Stocks to Hold for the Long Term

The S&P 500 Index currently yields about 1.3%. This is a very low number, but you can do much better if you look at the index and select good companies with relatively high returns. Three stocks that should be on your list as potential long-term holdings are RD (DR 0.93%), Price T. Rowe (FIND -0.37%)And Real estate income (O 0.28%). Here's why.

UDR provides housing, a basic necessity

Ultimately, UDR is a pretty boring real estate investment trust (REIT). It owns approximately 60,000 apartments in urban and rural communities. Notably, about 25% of rents come from the country's fastest-growing region, the Sunbelt, with 35% from the West Coast and 40% from the Northeast. It also has exposure to high-end (A-level assets) and mid-range (B-level assets) apartment complexes. In other words, UDR spreads its bets with the goal of creating a portfolio that can survive through the typical real estate cycle.

Right now things are difficult. A glut of new apartments led to a tough rental market around the same time that interest rates rose, which increased spending. Investors are worried, pushing the stock price down and the dividend yield to 4.2%. This is near the highest levels of the last decade, suggesting that UDR is currently on sale. But here's what's interesting: The UDR is telling investors very clearly that the situation will soon improve because the number of new apartments opening for business is expected to slow over the next two years. If that happens, Wall Street's opinion of this REIT should improve significantly.

A delicate business and no debt support the future of T. Rowe Price

If you're looking for dividend stocks without much volatility, you probably won't like asset manager T. Rowe Price. Although its customer base tends to be very loyal, since investors prefer not to move their assets too often, its assets under management (AUM) are heavily influenced by market developments. And Wall Street can be quite volatile at times. But T. Rowe Price is prepared for the ups and downs because it doesn't have long-term debt on its balance sheet.

The yield here is also near decade highs, at 4.2%. The reason is that investors are concerned about the shift from mutual funds to lower-cost exchange-traded funds (ETFs). This is a very real problem, but T. Rowe Price is aware of it. It offers ETFs and other investment products, such as alternative assets, that appear to have growth potential. The good news, as noted, is that customers tend to be loyal, so T. Rowe Price has plenty of time to pivot its business. And you have the opportunity to earn a generous dividend yield during this time.

Real estate income is the biggest and best

When it comes to the net lease REIT niche, one name stands out above all the others: Realty Income. (A net lease requires the tenant to pay most of the operating costs at the property level.) Continuing a theme here, the REIT's 4.9% yield is near its highest levels in the last decade. So, as with the other dividend stocks on this list, it appears that Realty Income is currently on sale.

But the real appeal is Realty Income's scale, with more than 15,400 properties. In terms of market capitalization, it is more than three times that of its next competitor. Add to that an investment-grade balance sheet and Realty Income enjoys privileged access to capital markets. A lower cost of capital means it can be aggressive on the acquisition front while still making profitable purchases. While this is a slow and steady turtle, if you enjoy owning the biggest and best, now seems like a good time to consider getting on board.

Three high-yielding picks from the S&P 500

There's nothing wrong with simply buying an index fund, but the S&P 500 is meant to be representative of the economy as a whole and therefore is not intended to provide income to investors. If your focus is on income, you'll probably want to choose from what constitutes a verified list of the S&P 500. If you do, you'll find that UDR, T. Rowe Price, and Realty Income stand out when it comes to high returns. .

Reuben Gregg Brewer holds positions in the real estate income sector. The Motley Fool posts and recommends Realty Income. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.