3 Best Cheap Stocks To Buy Now Before Retiring From the Military
Written by Samuel Smith for Sure Dividend
Transitioning to the civilian world after a career in the military is typically filled with challenges and changes, particularly for those who have served in the military for decades. Among the most common and difficult adjustments that service members must overcome are translating military skills and experience to a new industry, a sense of starting over both professionally and personally, and adjusting to an entirely new financial situation, which is where the best cheap stocks to buy now can really come in handy.
While the military tries to simplify personal finance for service members by providing generous benefits ranging from free health insurance to a housing allowance, those not currently serving are often left to fend for themselves. This not only requires more personal initiative and discernment on the part of the Veteran, but it also requires budgeting prowess. While active-duty service members often never have to worry about setting money aside for medical and housing bills, when they transition out of the service, if they are not careful, they may run out of money.
One of the best ways for service members to prepare for their transition and make budgeting easier each month is to build up a passive income stream that can give you that extra couple hundred or even thousand dollars each month to help make ends meet. Let’s look at three cheap dividend paying stocks that it might behoove service members to buy before leaving the military, a.k.a. the best cheap stocks to buy now before you leave the service.
Top 3 Best Cheap Stocks To Buy Now
1. Energy Transfer (ET)
Energy Transfer is an energy midstream business that provides critical infrastructure to the energy supply chain in North America. At a time when energy prices are soaring and demand in Europe for North American-sourced energy is surging due to the conflict in Ukraine, ET’s large and well-diversified energy infrastructure portfolio is more valuable than ever. On top of that, it earns an investment grade credit rating, which means that it has a sound balance sheet and is not expected to experience financial distress anytime soon.
Meanwhile, its 2022 expected cash flows are ~90% rooted in fee-based contracts, and only 10% are sensitive to commodity price swings. This makes its cash flow profile very stable, giving us confidence that its 8% distribution yield will be very sustainable, even if the economy goes into recession.
ET’s growth profile is also very promising, with management expressly stating that they plan to increase the distribution by over 50% relative to its current level as soon as possible. That means that within a few years, the yield on the current cost of buying a unit of ET could be over 12%. In addition to the tailwinds for the business and its stable contracts, ET also benefits from the fact that virtually all of its pipeline contracts are indexed to inflation in some manner. That means that as inflation remains high, ET’s cash flow should also experience a boost, helping to offset the negative impacts of inflation on your budget.
2. STORE Capital (STOR)
STOR is a triple net lease REIT with a large portfolio of over 2,500 single tenant free standing properties. Its leases are very conservatively structured, with nearly two decades’ duration and no exposure to the operating expenses of the properties. With fixed lease bumps attached to virtually all of the leases, STOR has very reliable built-in organic growth, as well, and, as a REIT, it does not pay any corporate income tax, so it can retain more rental income and pass it on to shareholders as dividends.
The company currently pays out a dividend yield of about 6% and is expected to increase its dividend this year by 6%. The company has a long history of growing its dividend each year and is expected to continue doing so for many years to come, making it a great source of both current income and inflation-protected long-term income.
Last, but not least, it is investment grade rated and has a recession-resistant business model that should enable it to continue paying and even growing its dividend, even in poor economic environments.
3. Blue Owl (OWL)
Blue Owl is an alternative asset manager that just went public a little over a year ago. However, its underlying businesses (direct lending in mostly senior secured floating interest rate loans, private equity general partner capital solutions, and triple net lease real estate investments) have been around for far longer, and each has an impressive track record. Its direct lending business has generated double-digit annualized returns for clients with little to no defaults, its general partner capital solutions business has built a dominant market share and generated strong returns for clients, and its triple net lease business has almost entirely investment grade tenants and has never failed to receive a rental payment from any of its tenants, even through the challenges posed by COVID-19 lockdowns.
OWL is growing rapidly, with the company expected to grow its earnings per share at a 24.1% annualized rate through 2024, and the dividend expected to increase from $0.45 per share at present (good for a 4.5% dividend yield at the current share price) to $1.00 per share in 2025. If accomplished, the stock price will likely see immense appreciation over the next several years, even as the company pays out a substantial and growing dividend to shareholders.
The vast majority of its asset management fee stream comes from permanent capital, and each of its underlying businesses is at least somewhat defensive against recessions and inflation. When combined with its solid investment grade credit rating, OWL offers impressive return potential with only moderate risk for investors.
Transitioning out of the military after a lengthy career is never easy and can bring personal, professional, and even financial challenges and hardship to ill-prepared service members. While you can never fully mitigate all risks and challenges ahead of time, a great step to take today in preparation for your post-military future is to begin setting aside money each month to invest in the best cheap stocks to buy now: investment grade and undervalued income-generating stocks like the ones above. By building up a passive income stream that pays you even just a few extra hundred dollars per month, you can dramatically reduce the risk of facing financial stress while transitioning.
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Samuel Smith is a graduate of the United States Military Academy at West Point and former active duty Army officer. After leaving the military, he worked as a licensed professional civil engineer before pivoting to a career in investment research, which has included analyzing dividend stocks for Sure Dividend since 2019.