We’re down to the last four months of the year. With interest rates likely heading lower on traditional fixed income investments now, let’s turn our attention to dividend-paying stocks that can also reward you with some capital appreciation. Realty Income (O 0.57%), Costco Wholesale (COST -0.67%), and Royal Caribbean Cruises (RCL -0.86%) are three dividend stocks that you might want to consider doubling up on right now.

Yield chasers already know Realty Income. Costco has proven its all-weather appeal with a small but steady payout. You probably didn’t know that Royal Caribbean reinitiated its distribution policy earlier this year. Let’s take a closer look at these three dividend stocks that I also happen to own.

1. Realty Income

Everything about Realty Income seems simple. The real estate investment trust (REIT) has a portfolio of more than 15,000 commercial properties that are typically in steady industries. Realty Income estimates that roughly 90% of its collected rent comes from businesses that are either recession resilient or immune to the disruptive pressure of e-commerce. Tenants sign triple-net leases, transferring the variable costs including property taxes, insurance premiums, and maintenance away from Realty’s side of the obligations.

It’s not just a conservative approach to portfolio construction that keeps things easy-breezy here. Investors receive their dividend checks monthly. The best income-generating stocks find a way to bump their payouts higher year after year. Realty Income has come through with hikes for 107 consecutive quarters. 

Image source: Getty Images.

The downside to consistency is the slow growth that comes with the territory. Organic top-line gains are modest. Adjusted funds from operations in its latest quarter rose a modest 6%. However, there’s also predictability in the steady cadence of baby steps in the right direction. Realty Income is built to deliver even in high interest rate environments, having grown its bottom line in 27 of the last 28 years. This doesn’t mean that the stock itself won’t benefit when interest rates start moving lower later this year.

Realty Income’s current 5.1% yield is in line with what investors can collect with even less risk through the country’s top-paying money market funds right now. How will income investors feel when those money market yields start moving lower as the Fed starts moving the limbo stick lower? We already know that Realty Income should keep moving its distributions marginally higher with every passing quarter. Whether the yield gap widens or Realty Income shares move higher, investors are positioned to win either way.

2. Costco Wholesale

You don’t see a lot of income investors lining up with shopping carts to get into Costco. The warehouse club operator yields a meager 0.5%, even if it has come through with much larger one-off special distributions every few years. However, like Realty Income, it’s built for all economic weather reports. If the going is good, folks go shopping. If things aren’t going so well, people lean on Costco’s low-margin business model to get more value for their money.

Revenue declined 1.5% in fiscal 2009 during the Great Recession, but it’s been positive for more than 30 years outside of that modest hiccup. An interesting catalyst came in July when Costco raised its annual membership fee by 8%, its first increase in seven years. The shares initially moved lower because the market was hoping for a bigger increase, but I applaud the conservative approach.

Costco’s in-store pricing is so shopper-friendly that it generates a higher operating profit from its membership fees that make up just 2% of its revenue than it does from the balance of its business. If the Fed starts easing in the coming weeks, it’s partly on softening inflation concerns but also on heightening recessionary fears. Costco can’t afford to lose customers because it wanted an extra $5 a year out of its shoppers.

3. Royal Caribbean

The country’s most valuable cruise line by market cap became the first to restore its dividend. This isn’t a surprise. Royal Caribbean is historically the best of the three major cruise lines in terms of margins and growth. The 1% yield isn’t going to make waves, but Royal Caribbean’s biggest gains will come through the stock itself.

Bookings are now well above pre-pandemic highs, but the stock is surprisingly cheap. You can buy Royal Caribbean for 14 times this year’s earnings and just 12 times next year’s target. The cherry on top here is that the cruise line has consistently posted double-digit percentage beats on the bottom line over the past year. In other words, if the “beat and raise” trend continues the actual forward earnings multiples will be even cheaper. This is what cruise buffs would call smooth sailing.