Income investors looking for high-yield stocks with growth potential should consider investing in Real Estate Investment Trusts. REITs operate across a number of sectors, including industrial, healthcare, and retail.

Since REITs are required to distribute most of their taxable income to shareholders, in exchange for a favorable tax status, they are naturally appealing for income investors. In addition, REITs tend to have a lower correlation to the stock market, often leading to lower volatility.

In addition, investors should focus on REITs with quality business models and sustainable dividend payouts. These 3 REITs have safe dividends, even in a recession, along with their high yields above 4%.

Federal Realty Investment Trust (FRT)

Federal Realty concentrates in high-income, densely populated coastal markets in the US, allowing it to charge more per square foot than its competition.

In the 2023 first quarter, revenue increased by 6.3% Y/Y to $273.06M, with Federal Realty maintaining its 2023 guidance. The company achieved 3.6% growth in comparable property operating income for Q1 and signed 101 leases for 504,502 square feet of comparable space. Net income for common shareholders was $0.65 per diluted share. We estimate $6.46 in FFO-per-share for this year.

Federal Realty’s growth moving forward will be comprised of a continuation of higher rent rates on new leases and its impressive development pipeline fueling asset base expansion. Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT

Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT. The company has increased its dividend for over 50 years in a row, placing it on the Dividend Kings list. FRT is the only REIT on the Dividend Kings list.

Douglas Emmett (DEI)

Douglas Emmett is the largest office landlord in Los Angeles and Honolulu, with a 38% average market share of office space in its submarkets. The REIT generates 86% of its revenue from its office portfolio and 14% of its revenue from its multifamily portfolio. It has approximately 2,700 office leases in its portfolio, with annual revenue of $1 billion.

The merits of being the largest office landlord in Los Angeles are obvious, as Los Angeles County is the third-largest city in the world, with GDP of $1 trillion, behind only Tokyo and New York. The dominant position of Douglas Emmett creates operational synergies. In addition, the REIT benefits from high barriers to entry, which reduce competition. Moreover, the proximity to premier housing attracts affluent tenants, who offer reliable cash flows to the company.

In early August, Douglas Emmett reported (8/1/23) financial results for the second quarter of fiscal 2023. Revenue grew 3% thanks to new multifamily units but adjusted funds from operations (FFO) per share dipped -8% over the prior year’s quarter due to increased interest expense. Management lowered its guidance for FFO per share in 2023 from $1.87- $1.93 to $1.81-$1.85 due to some move-outs. Fortunately, 87% of debt is at fixed rates and there are no debt maturities until the end of 2024. DEI shares currently yield 6.3%.

NNN REIT (NNN)

NNN REIT, formerly known as National Retail Properties, is a REIT that owns ~3,000 single-tenant, net-leased retail properties across the United States. It is focused on retail customers because they are much more likely to accept rent hikes in order to avoid switching locations and losing their customer base. It is also characterized by very high occupancy rates; its 15-year low occupancy rate is 96% and it typically ranges between 98%-99%.

National Retail recently reported Q1 results. FFO (Funds From Operations) per share increased by 6.7% compared to the previous year, while Core FFO per share saw a 3.9% increase, and AFFO (Adjusted Funds From Operations) per share increased by 3.8% compared to the prior year. The company also maintained high occupancy levels, with a rate of 99.4% and a weighted average remaining lease term of 10.3 years as of March 31, 2023. This represents a consistent occupancy rate compared to the previous quarter and a slight improvement from the previous year.

Future growth will be led by the company’s acquisitions. Last quarter NNN made property investments totaling $156.2 million, acquiring 43 properties with a combined gross leasable area of approximately 275,000 square feet. These acquisitions were made at an initial cash cap rate of 7.0%.

NNN has a healthy dividend payout ratio around 70% of projected 2023 FFO-per-share, with an attractive current yield of 4.2%.
_______________
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.