3 high-yield REITs for secure dividend income

Real estate investment trusts, or REITs, are generally a great place to go for safe and attractive dividend income. This is because they benefit from zero corporate tax and are required by law to pay at least 90% of their taxable income as dividends to their shareholders. Additionally, the vast majority of REITs benefit from the defensive and stable nature of real estate contractual rental income.

As a result, it is no surprise that many blue-chip REITs that have been around for decades have now joined the ranks of the world’s most elite dividend growth companies such as Dividend Aristocrats (25+ consecutive years of dividend growth) and/or Dividend Kings ( over 50 consecutive years of dividend growth).

Here, we’ll look at three high-yield REITs that offer safe dividends and are either Dividend King or Dividend Aristocrat.

A young aristocrat in “moving” condition.

Essex Property Trust (ESS) joined the Dividend Aristocrats club quite recently as it has raised its dividend for 28 consecutive years. Given its very attractive long-term growth prospects, stellar balance sheet and conservative payout, we expect it to continue to raise its dividend for many years to come.

Its business model is primarily the development, redevelopment, management, acquisition and sale of multi-family residential apartment communities on the West Coast. It currently owns over 60,000 apartments spread across hundreds of communities.

It enjoys three main competitive advantages that generate alpha from this business model.

First, it can develop multi-family properties and then sell them for significant profits. Second, it can leverage its experience and commercial network to acquire properties and then engage in value-enhancing redevelopment activities that produce highly attractive risk-adjusted returns for shareholders. Third, its geographic focus means it operates in supply-limited markets with strong economic fundamentals. As a result, there’s little threat of oversupply flooding markets, meaning his properties have a strong moat around them. Given the technology-fueled job growth in its markets and limited supply coupled with its development and redevelopment capabilities, ESS has a bright future.

ESS has also proven to be quite recession-resistant due to its commodity staples offering, making its cash flow and dividend growth profile all the more promising should we encounter a severe recession in the near future. For example, if Funds From Operations (FFO) per share actually increased during the last recession, from $5.57 in 2007 to $6.14 in 2008 and then $6.74 in 2009.

By combining its competitive advantages and low-risk profile with its 4% dividend yield and projected 5-6% FFO and dividend-per-share CAGR over the next half-decade, ESS offers a very interesting for investors looking for a safe high yield.

The Legend of ‘O’

Realty Income (O) is a legendary stock for dividend growth thanks to its track record of crushing S&P 500 total returns since it went public in 1994 and has paid an attractive monthly dividend that has increased for 27 consecutive years.

It enjoys immense scale, with a portfolio of 11,733 properties leased with conservatively structured triple net leases to 1,147 tenants. O has a weighted average lease term of 8.8 years and generates 43% of its rental income from investment grade tenants, which gives it high visibility into future cash flow. This cash flow has also proven to work very well during recessions, further boosting its profile.

With an A- credit rating, weighted average residual maturity of 6.3 years on its notes and bonds, a fixed expense coverage ratio of 5.5x, 95% of the debt is unsecured, 88% With debt at fixed interest rates, liquid assets of more than $2.5 billion, and net debt to annualized pro forma adjusted EBITDA of 5.2x, O’s balance sheet is fortress-like.

Stock O currently offers an attractive dividend yield of 4.5%, which is very safe and likely to continue to grow for many years to come given its strong business model and track record. Or it also trades at a significant discount to its historical averages on an EV/EBITDA, P/AFFO and P/NAV basis. Combined with continued expected growth in annualized single-digit AFFO per share and dividend yield of 4.5%, this creates an attractive risk-adjusted total return profile.

Make a federal case with this REIT

Finally, Federal Realty Trust (FRT) is a leading retail-focused REIT that owns, develops and redevelops shopping centers in high-income, densely populated coastal markets across the United States. These markets are likely to help FRT generate long-term outperformance due to their strong income and population growth trends.

With more than 3,100 tenants in over 105 properties and not a single tenant providing even 3% of its annualized basic rent, FRT is well insulated against the retail bankruptcies that can develop as e-commerce continues to grow and potential future recessions affect retailers and their landlords.

In addition to its focus on markets with favorable income and demographic trends, FRT also creates shareholder value by leveraging its strong A-rated balance sheet to invest in its current and new properties at attractive rates of return. In addition to driving rental income growth, these investments also keep its assets fresh and attractive to both tenants and buyers, further strengthening their competitive positioning.

While certainly not recession-proof, FRT performed well during the last great recession and will likely do so again during the next recession given its diversification, the strength of its markets, and the quality of its tenants and properties. During the last great recession, its FFO per share grew 6.4% year-over-year in 2008, decreased 8.8% in 2009, and then grew 10.5% in 2010. As a result, we look forward to its long-term streak of dividend growth continuing.

Bottom line

With economic uncertainty at a very high level, safe and attractive income investments are more valuable than ever to investors. With attractively priced and proven high-yield REITs such as ESS, O and FRT, investors have access to some of the best real estate portfolios, management teams and business models in the world that are expected to continue to deliver growing income streams for many years to come. come.

Receive an email alert every time I write an article for Real Money. Click “+Follow” next to my signature on this article.

Leave a Reply

Your email address will not be published. Required fields are marked *