Stock market sell-offs aren’t fun if you’re already fully invested. However, they’re opportunities for those who have cash to deploy. That’s why I always try to keep some cash on the sidelines — so I’m ready to capitalize when Wall Street takes a tumble.

I also keep a watch list of stocks that I know I’d like to buy if they ever fall to more attractive levels, and Realty Income (NYSE: O) and W. P. Carey (NYSE: WPC) are currently at the top of that list. These real estate investment trusts (REITs) already offer supercharged dividend yields. However, they’ll likely become even more attractive during the next market slump.

A model of consistency

Realty Income’s dividend yield at its current share price is over 5%. That’s several times higher than the S&P 500‘s average dividend yield, which is now below 1.4%. This monthly dividend payer has a terrific track record of increasing its payouts: It recently delivered its 108th consecutive quarterly increase and its 127th boost since coming public in 1994.

The diversified REIT owns a portfolio of retail (74.4% of its rent), industrial (14.5%), gaming (3.3%), and other (2.8%) properties, which it rents under triple net lease agreements to high-quality tenants in durable industries. That lease structure makes tenants responsible for all of a property’s operating expenses, including routine maintenance, building insurance, and real estate taxes.

Meanwhile, Realty Income’s typical tenants are in businesses that are resistant to the impact of both recessions and e-commerce competition, such as grocery chains, convenience stores, and pharmacies. These features supply Realty Income with stable rental income.

The REIT pays out about three-quarters of its stable cash flow to investors via dividends. That gives it a big cushion while also allowing it to retain a meaningful amount of cash with which it can expand its portfolio of income-generating properties.

Realty Income believes it can grow its adjusted funds from operations (FFO) by around 4% to 5% annually. That should support continued growth in its high-yielding dividend.

Back to rising after a reset

W. P. Carey shares a lot of similarities with Realty Income. It’s also a diversified REIT that inks triple net lease deals with its tenants. However, it concentrates more on industrial and warehouse properties (64% of its rent), with the balance coming from retail (21%) and other properties (15%). W. P. Carey also has a portfolio of operating self-storage facilities.

The company focuses on owning operationally critical commercial real estate. Because these properties are particularly vital to their tenants, they tend to pay rent on time and renew their leases at market rates. W. P. Carey’s leases also typically have built-in rent escalators that either boost rents at a fixed rate or one tied to inflation. Its rents rose at a 2.9% annualized rate in the second quarter, much faster than the roughly 1% annualized rental growth rate Realty Income expects this year.

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W. P. Carey aims to pay out less than three-quarters of its steadily rising rental income via dividends. At the current share price, its payout yields around 5.5%. The REIT aims to grow its dividend by around the same rate as its adjusted FFO. While it cut its dividend by almost 20% late last year following its strategic decision to exit the office sector, it has already increased its payments twice in 2024 (albeit by small amounts). The REIT uses the cash flow it retains and its strong financial profile to expand its portfolio, which should grow its rental income and dividend.

Supercharged income streams

Realty Income and W. P. Carey already offer big-time dividend yields backed by high-quality real estate portfolios that produce stable rental income. Those payouts should steadily rise in the future as the REITs expand their durable portfolios.

However, their stock prices will likely decline during a market sell-off. That makes a downturn a good time to lock in an even higher dividend yield. So if you haven’t done so already, now would be a great time to start building up a bit of a cash reserve. Then you can add these dividend stocks to your watch list so that you’ll be able to supercharge your return potential by picking up shares following the next sell-off.

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Matt DiLallo has positions in Realty Income and W.P. Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

2 Supercharged Dividend Stocks to Buy If There’s a Stock Market Sell-Off was originally published by The Motley Fool