Real Estate Investment Trusts, or REITs, offer investors the opportunity to invest in real estate, without having to own property. Real Estate Investment Trusts are appealing for income investors due to their high-dividend yields.
But investors should also assess whether the dividend payout is sustainable. The current environment is challenging for REITs due to the potential for a recession as well as rising interest rates.
The following 3 REITs have strong business models and safe dividends, in addition to their high yields.
Top REIT #1: Realty Income (O)
Realty Income owns a highly diversified portfolio by industry, tenant, and geography. Its portfolio is heavily concentrated in retail properties but it also has exposure to industrial, office, and agricultural tenants. The company derives rental income from the U.S. and U.K.
It owns a diversified portfolio with tenants such as Walgreens, 7-Eleven, Dollar General, among others. Realty Income owns more than 6,500 properties, which further indicates the diversification.
In the 2022 fourth quarter, Realty Income generated revenue of $889 million, which rose 30% due to organic growth as well as the acquisition of Vereit last year. Normalized (funds from operations) FFO-per-share increased 18% to $1.05. The company ended the quarter with a net-debt-to-adjusted-EBITDAre of 5.3x.
Realty Income has increased its dividend for over 25 consecutive years, which qualifies it as a Dividend Aristocrat, an exclusive group of stocks in the S&P 500 Index with 25+ years of dividend increases. Realty Income stock yields 4.7%.
Top REIT #2: Federal Realty Investment Trust (FRT)
Federal Realty primarily owns shopping centers. However, it also operates in redevelopment of multi-purpose properties including retail, apartments, and condominiums. The portfolio is highly diversified in terms of tenant base.
The company has increased its dividend for over 50 consecutive years, making it a Dividend King.
On February 8th, 2023 FRT reported operating results for its year and quarter ended December 31, 2022. For the year ended December 31, 2022 and 2021, net income available for common shareholders was $4.71 per diluted share and $3.26 per diluted share, respectively.
For the three months ended December 31, 2022 and 2021, net income available for common shareholders was $1.40 per diluted share and $1.44 per diluted share, respectively. For the year ended December 31, 2022 and 2021, Federal Realty reported operating income of $526.4 million and $394.7 million, respectively.
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. Margins are expected to continue to rise slightly as it redevelops pieces of its portfolio and same-center revenue continues to move higher. Shares currently yield 4.1%.
Top REIT #3: Essex Property Trust (ESS)
Essex Property Trust invests in West Coast multifamily residential proprieties where it engages in development, redevelopment, management and acquisition of apartment communities and a few other select properties. Essex has ownership interests in several hundred apartment communities consisting of over 60,000 apartment homes.
On February 7th, 2023 Essex announced its fourth quarter and full-year 2022 earnings results. Q4 FFO of $3.77 beat analyst estimates by $0.04. The trust achieved same-property revenue and net operating income growth of 10.5% and 13.3%, respectively, compared to the fourth quarter of 2021. As of February 6, 2023, the Company had approximately $1.3 billion in liquidity via undrawn capacity on its unsecured credit facilities, cash, and marketable securities.
Essex Property Trust is a high-quality apartment REIT that has raised its dividend for 28 consecutive years. The trust has a solid BBB+ credit rating and healthy leverage ratios. Shares currently yield 4.1%.
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.
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