Key Points

• Analyst expectations are far above the prices you'd need to pay now to own a couple of biotechnology stocks.

• Compass Pathways is developing psilocybin as a treatment for depression.

• Viking Therapeutics recently began a pivotal study with a weight-loss drug that could outperform the competition.

• 10 stocks we like better than Compass Pathways Plc ›

Investors seeking stocks that can put up dramatic gains in a short amount of time can find what they're looking for in the biotechnology industry. Investment bank analysts on Wall Street have tagged a pair of pre-revenue businesses with price targets that are miles above their current stock prices.

Compass Pathways (NASDAQ: CMPS) is developing a depression treatment based on a recreational drug that produced some interesting results in a clinical trial. Viking Therapeutics (NASDAQ: VKTX) is developing anti-obesity treatments that could compete toe-to-toe with blockbusters like Wegovy and Zepbound.

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At recent prices, the average targets that analysts set for these drugmakers suggest they can more than double your money over the next 12 months. Before opening your brokerage account and filling it with these stocks, it's important to remember that sell-side analysts will quietly adjust their price targets downward if things don't work out. Replacing the losses you could incur by following a bad prediction isn't nearly as easy. Here's a closer look at some of the risks these companies face so you can see whether their shares deserve a place in your portfolio.

1. Compass Pathways

Shares of Compass Pathways spiked during the COVID-19 pandemic, and at one point, the pre-commercial-stage drugmaker boasted a market cap above $2 billion. The stock collapsed by about 93.3% from its previous peak, but analysts who follow the company expect a comeback. The consensus price target of $15.78 at the moment implies a gain of more than 300% from recent prices.

Compass Pathways is one of several companies developing recreational psychedelics as treatments for millions of underserved folks with depression and related ailments. Its only clinical-stage treatment candidate at the moment is COMP360, a proprietary formulation of synthetic psilocybin.

Psilocybin is the psychoactive ingredient in "magic" mushrooms. Long known to produce a powerful hallucinogenic effect, psilocybin has gained popularity among drug developers due to its effects on serotonin receptors implicated in major depressive disorder.

In June, Compass Pathways reported successful results from the COMP005 trial with treatment-resistant depression (TRD) patients and COMP360. Six weeks after receiving a single administration, TRD patients who received COMP360 scored an improvement on the Montgomery-Asberg Depression Rating Scale (MADRS) that was 3.6 points better than the placebo group.

An MADRS score above 6 indicates mild depression, while anything above 35 is considered severe. Since COMP360 reduced scores by 3.6 points after one administration, investors are more than a little excited to see upcoming results from the COMP006 study, which will compare results from two fixed doses taken three weeks apart.

Compass Pathways is what some investors call a lottery ticket stock. If the MADRS reduction benefits recorded during the multidose COMP006 trial are any stronger than those observed during the single-dose COMP005 study, this stock could soar. COMP360 could generate over $1 billion annually as a new TRD treatment, but the market currently has much lower expectations. At recent prices, Compass Pathways' recent market cap is just $363 million.

A successful result for COMP006 could cause this stock to soar, but depression is hard to measure. Placebo groups in clinical trials measuring depression often respond well to the extra attention. This makes depression study results highly unpredictable. Even investors with a high tolerance for risk should tread lightly with this stock.

2. Viking Therapeutics

Viking Therapeutics is another clinical-stage drugmaker stock that is way off its all-time high. Early last year, its market cap soared past $9 billion. When the market closed on July 17, the stock's price was 66% below the peak it had reached last year.

Wall Street analysts who follow Viking Therapeutics think its best days are still ahead. The consensus price target of $90.26 suggests its price can rocket 181% higher in about a year.

This stock spiked last February after the company announced success with its lead candidate, a dual GLP-1/GIP receptor agonist tentatively named VK2735. Patients with obesity achieved a placebo-adjusted weight loss of 13% after just 13 weeks of treatment. These results suggest it could outperform Zepbound from Eli Lilly in terms of weight loss.

In November 2023, Zepbound earned approval from the Food and Drug Administration (FDA) to treat obesity. In the first quarter this year, it generated an annualized $9.3 billion in sales. Biotech stocks tend to trade at mid- to high-single-digit multiples of trailing-12-month sales. Viking Therapeutics' market cap of just $3.6 billion seems extremely low for a company with a drug candidate in late-stage trials that could go on to generate Zepbound-sized sales.

Viking Therapeutics appears underappreciated, but it's still a risky stock with a long road ahead. In June, the company started a phase 3 study designed to support a new drug application. If the new 4,500-patient trial uncovers any tolerability issues we missed in smaller phase 2 studies, Viking's price could collapse. This is another stock that's appropriate only for investors with a high risk tolerance.

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If you go sifting the market for ultra-high-yield dividend payers, it won't take long before you land on Annaly Capital Management (NYSE: NLY). The stock offers a dividend yield above 14% at recent prices. That's more than 10 times higher than the average dividend payer in the benchmark S&P 500 (SNPINDEX: ^GSPC).

Stocks generally don't offer yields at double-digit percentages unless investors are concerned their underlying businesses won't be able to meet their dividend commitment. Annaly Capital recently did the unthinkable. Even though its yield seems unsustainable, the company raised its quarterly payout by 7.7% this March to $0.70 per share.

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With its yield so high, it will take a little over five years before Annaly returns your entire principal investment. On the surface, this seems like a no-brainer stock to buy for income seekers, but there are a few things you should know about real estate investment trusts (REITs) that don't own real estate.

Image source: Getty Images.

How Annaly Capital makes money

Like every other REIT, Annaly can legally avoid income taxes by distributing at least 90% of its profits to investors as dividend payments. Unlike most REITs, though, it doesn't invest in real estate. Instead, it invests in mortgage-backed securities (MBS) backed by government agencies, mortgage servicing rights (MSR), and residential credit.

Data source: Annaly Capital Management. Table by author.

With increasing returns from all three components of its portfolio, Annaly reported earnings available for distribution that reached $0.72 per share in the first quarter. That's in line with the previous quarter and slightly more than it needs to meet its recently increased commitment of $0.70 per share.

Agency MBSes aren't as large a component of Annaly's portfolio as they seem due to heavy leverage. At the end of March, the company was using about $8 billion in capital to reap returns from an MBS portfolio worth $75 billion.

Annaly's growing mortgage servicing business handles administrative tasks of a mortgage on behalf of the original lender, such as billing and payment collection. Servicers typically receive 0.25% of outstanding loan balances.

Why income-seeking investors should avoid this stock

Diversification toward residential credit and mortgage servicing is a step in the right direction, but investors who need reliable sources of income may want to keep looking.

If you're excited about the high yields mortgage REITs (mREITs) offer, just remember that their loans are secured by their MBS portfolios. The carrying value of MBS or any asset that pays a predetermined yield can shrink significantly when the Federal Reserve raises interest rates.

NLY Dividend data by YCharts

When interest rates change slowly with lots of foreshadowing by the Federal Reserve, a well-run mortgage REIT like Annaly can trim unattractive assets and acquire new ones fast enough to maintain its dividend payout. A rapid rate increase, such as the one we experienced a few years ago, though, can throw a wrench in the company's gearbox. In a nutshell, rapidly rising rates a few years ago led Annaly to reduce its dividend by 26% in early 2023.

If you look back further, you'll see this mortgage REIT has reduced its dividend payout several times over the past decade. Annaly is by no means an outlier, either. Its peers in the mREIT space, AGNC Investment and MFA Financial, also have significant dividend reductions in their recent history.

At its latest meeting, the Federal Reserve decided to maintain the federal funds rate in a range between 4.25% and 4.5%, but promised to continue reducing its MBS portfolio. While we can reasonably expect Annaly to maintain its recently increased dividend payout for a few more quarters, what happens after that is guesswork. With a future so foggy, passing on this stock is the right move for most income-seeking investors.

Should you invest $1,000 in Annaly Capital Management right now?

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Does a topsy-turvy stock market and reports of underutilized U.S. shipping ports make you nervous about buying, or even holding stocks? At times like these, it's a lot easier to ignore the news flow when you have a portfolio full of dividend payers that deposit increasingly larger payments into your brokerage account.

Investors seeking reliable sources of passive income will be glad to know that Brookfield Infrastructure (NYSE: BIPC), Omega Healthcare Investors (NYSE: OHI), and Realty Income (NYSE: O) offer dividend yields above 4% at recent prices. Here's why adding them to a portfolio now and holding them for the next couple of decades is a great move for many income-seeking investors.

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1. Brookfield Infrastructure

Brookfield Infrastructure is a leading infrastructure investor that owns utilities, pipelines, data centers, and heaps of transportation assets spread around the globe. It's a dividend investor's dream come true because the assets in its portfolio generate predictable cash flows thanks to long-term contracts and government-regulated pricing.

Infrastructure isn't a high-growth business, but Brookfield Infrastructure has been able to raise its payout by 32.7% since 2020. At recent prices, the stock offers a juicy 4.5% yield, and I won't be surprised if its dividend growth rate accelerates in the decades ahead.

With heaps of depreciating assets, funds from operations (FFO) is the preferred metric for measuring Brookfield Infrastructure's ability to raise its dividend-paying commitment. Management recently reported first-quarter FFO that rose 12% year over year due to a combination of rate increases and acquisitions it made last year.

The company made growth capital expenditures that totaled $730 million in the first quarter. Despite the huge outlay, it still has $4.9 billion in liquidity. This is more than enough to continue running its time-tested strategy, which makes steady gains over the next couple of decades seem likely.

2. Omega Healthcare Investors

Omega Healthcare Investors is a real estate investment trust (REIT) that focuses mostly on skilled nursing and transitional healthcare facilities. With the other 30% of its portfolio made up of senior housing facilities, this stock is a relatively safe way to bet on an extremely reliable trend. From 2020 through 2023, the population aged 65 and older increased in all but one of America's 387 metro areas, according to the U.S. Census Bureau.

Omega's portfolio contains 978 operating facilities. About three-quarters are spread across 42 states, and the rest are in the U.K. Instead of operating its own assets, the REIT takes a hands-off approach and gets facility operators to sign net leases that transfer all the variable costs of building ownership to its tenants.

With rent raises written into long-term leases, Omega's cash flows are generally predictable. A focus on older adults, though, made the COVID-19 pandemic extra challenging. Despite the turmoil, the REIT has held its dividend payout steady since 2019.

At recent prices, Omega Healthcare Investors offers a 7.2% yield that could rise significantly over the next few years. In 2025, management expects adjusted FFO to land in a range between $2.95 and $3.01 per share. That's more than it needs to meet a dividend obligation currently set at $2.68 per share annually.

3. Realty Income

If a long track record of steady dividend raises excites you, Realty Income belongs in your portfolio. This net lease REIT has been raising its monthly dividend payout since starting out with a single Taco Bell restaurant over 50 years ago. At recent prices, it offers a big 5.7% yield.

Realty Income was founded to build a reliable real estate portfolio and maintain access to low-cost capital. It achieved reliability with industry-leading diversification in the most resilient corners of the economy. Convenience stores, service-oriented retail, and nondiscretionary retail make up the vast majority of its 15,621-building portfolio.

7-Eleven, followed by Dollar General and Walgreens, are Realty Income's three largest tenants, but they're only responsible for about 10% of annualized rent. With a diverse roster of well-heeled tenants, this is one of a handful of REITs with an A3 credit rating from Moody's.

This April, Realty Income leveraged its outstanding credit rating to borrow $600 million at just 5.3% over the next 10 years. With plenty of low-cost capital and a market for commercial property that's still largely untapped by net lease REITs, this is a great stock to buy now and hold for the next couple of decades.

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Before you buy stock in Brookfield Infrastructure, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Brookfield Infrastructure wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $623,685!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $701,781!*

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's and Realty Income. The Motley Fool has a disclosure policy.

If you're concerned about having enough income after you retire, there are lots of options. Buying rental properties is a popular one, but finding tenants and keeping up with maintenance often requires more effort than many retirees have in mind.

If dealing with contractors and tenants isn't your idea of a good time, I have great news. Real estate investment trusts, or REITs, are a terrific way for everyday investors to collect rent without owning any buildings themselves. REITs trade like stocks, but these specialized entities can legally avoid income taxes by distributing at least 90% of their profit to shareholders as dividends.

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Realty Income (NYSE: O) and W.P. Carey (NYSE: WPC) are well-established REITs that offer an average yield of 5.8% at recent prices. That means $17,300 spread between them is enough to produce $1,000 in annual dividend income. Here's why they're great options for folks who want passive income they can rely on to grow steadily throughout their retirement years.

1. Realty Income:

Realty Income is a net lease REIT that finished 2024 with 15,621 properties in its portfolio. The vast majority of annual rent it receives comes from retail properties resilient to e-commerce trends, such as convenience stores, dollar stores, and pharmacies. At recent prices, it offers a 5.7% dividend yield.

Realty Income's portfolio is well diversified. Its three largest tenants -- 7-Eleven, Dollar General, and Walgreens -- are responsible for just 10% of total rent.

Troubled businesses like Walgreens illustrate how net lease REITs like Realty Income can produce steady gains for patient investors. The troubled pharmacy chain suspended its dividend this year and will most likely be acquired by a private equity firm. Despite the turmoil, we haven't heard a peep from Realty Income about the pharmacy chain missing any lease payments.

Realty Income offers a monthly dividend payment that has risen steadily since the company's inception in 1969. In March, it raised its monthly dividend for the 130th quarter since becoming a publicly traded business in 1994.

The past decade hasn't been a historically great time to own commercial real estate. By rinsing and repeating its time-tested net lease operation, though, Realty Income has been able to increase its dividend at a 3.9% annual rate since 2015.

At recent prices, Realty Income offers a big 5.7% dividend yield, and steady growth at the usual pace shouldn't be too difficult. The REIT didn't enter the European net lease market until 2019, and this region is still brimming with opportunities. Realty Income and its peers account for less than 0.1% of the addressable market in that region.

2. W.P. Carey

While Realty Income's dividend has only moved in one direction, W.P. Carey lowered its quarterly payout in 2023 to compensate for the spinoff of its office portfolio as Net Lease Office Properties. Dividend reductions aren't something REIT investors want to see, and they punished the stock severely.

Adjusting its payout 19.7% lower to $0.86 per share in 2023 led to a dramatic stock market beatdown that the diversified net lease REIT hasn't completely recovered from. At recent prices, it offers a big 5.9% dividend yield.

After spinning off its office portfolio, W.P. Carey quickly returned to raising its payout every quarter. The payout investors received in April was 3.5% higher than the one they got a year earlier.

W.P. Carey's 1,555 property portfolio is arguably more diversified than Realty Income's. Its three largest tenants are a self-storage business called Extra Space Storage, a generic drug manufacturer called Apotex, and a business-to-business wholesaler in Italy named Metro. These top three tenants are responsible for just 7.1% of annualized rent.

Sometimes, net lease REITs buy or develop properties first and find tenants later. Mostly, though, they function as lenders through sale-leaseback transactions. By investing in properties that its tenants already use, W.P. Carey's occupancy rate hasn't dipped below 98% since 2011.

Being a big, well-established REIT gives a huge cost advantage to W.P. Carey. During the fourth quarter of 2024, it borrowed 600 million Euros at just 3.7% for 10 years. With access to inexpensive capital and a European market ripe for sale-leaseback financing, there's a good chance this REIT can keep raising its dividend payout throughout your retirement years.

Should you invest $1,000 in Realty Income right now?

Before you buy stock in Realty Income, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Realty Income wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Cory Renauer has positions in W.P. Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Extra Space Storage. The Motley Fool has a disclosure policy.