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 prized by income investors due to their high dividend yields.
But the dividend yield is not the only consideration when purchasing REITs. 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.
In such a difficult environment, investors should focus on quality REITs. 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 most recent quarter, Realty Income beat analyst estimates on both revenue and FFO-per-share. Revenue increased 74.9% from the same quarter last year due to property acquisitions and rent increases. Adjusted FFO-per-share beat estimates by $0.03 and increased by 15.9% compare to the second quarter of 2021.
Future growth remains likely, as the company’s acquisition pipeline is robust. For example, Realty Income’s acquisition of VEREIT, which closed in early November, is responsible for the majority of the forecasted growth in this year’s results.
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. There are only 65 Dividend Aristocrats, including Realty Income.
Shares currently yield 4.8%, and while there are other REITs with higher dividend yields, few can match Realty Income’s dividend safety and track record of stability.
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.
Federal Realty reported Q2 earnings on 08/04/22. FFO per share came in at $1.65, up from $1.41 in the year-ago quarter. Total revenue increased 14.0% to $264.1M year-over-year. Net income available for common shareholders stood at $0.75, up from $0.57 in the year-ago period.
During the quarter, Federal Realty continued record levels of leasing with 132 signed leases for 562,111 square feet of comparable space. The trust’s portfolio, during the quarter, was 92.0% occupied and 94.1% leased, up by 240 basis points and 140 basis points, respectively, year-over-year. Moreover, small shop leased rate was 89.3%, up by 360 basis points year-over-year. Federal Realty also reported Q2 comparable property operating income growth of 8.2%.
Meanwhile, the company raised its 2022 earnings per share guidance to $2.50-$2.65 from $2.36-$2.56 and FFO per diluted share guidance to $6.10-$6.25 from $5.85-$6.05. the company also expects comparable property income growth to be in the range of 5.5% to 7.0%. This will easily secure the current dividend payout, which yields 4.8%.
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.
In the 2022 second quarter, core FFO-per-diluted share increased 21.1% to $3.68 from $3.04 year-over-year. Total FFO per-diluted share increased 1.3% to $3.13 from $3.09 in the year-ago period. Same-property gross revenue increased by 12.7% and same-property net operating income increased by 16.7% year-over-year.
Meanwhile, Essex updated its 2022 core FFO per share guidance to $14.35 to $14.55, and net income per diluted share guidance to $4.76 to $4.96. ESS also expects full-year same-property revenue growth of 10.0% to 10.6% and sameproperty NOI growth of 13.0% to 14.0%.
Essex Property Trust is a high-quality apartment REIT that has raised its dividend for 27 consecutive years. Real estate has a natural moat and Essex’s exposure to high-value cities with strong technology cultures further widens that moat. This was shown during the previous recession, when the trust’s FFO fell, but not by an extreme amount, and Essex was able to continue raising its dividend. The trust has a solid BBB+ credit rating and a solid debt to adjusted EBITDA of ~5.5x. Shares currently yield 3.5%.
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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