The prospect of dividend increases often drives investors into real estate investment trusts (REITs). The requirement that they pay 90% of net income to avoid some forms of taxation, and the cash flows that tend to come with real estate in general, tend to attract investors. This remains especially true of REITs, which pay an average dividend yield of 4.3%. The average dividend yield of the S&P 500 stands at only 1.8%.
Moreover, in an environment of increasing profits, the 90% requirement often forces REITs to raise the dividend, sometimes frequently. July can be a popular time for a REIT’s dividend increase, as it represents the midpoint of the fiscal year for most stocks.
These four stocks will or should see those mid-year dividend increases:
REITS Likely to Have Dividend Increases: Alexandria Real Estate Equities (ARE)
Dividend Yield: 2.9%
Alexandria Real Estate Equities (NYSE:ARE) owns offices and laboratories. They rent space to science and technology companies and tend to buy some property within AAA innovation cluster locations.
The 2008 financial crisis hit ARE stock hard, taking the stock down to just above $30 per share at one point. It has seen a long road to recovery, not returning to its 2008 high until 2016. Now, it continues on an upswing, trading at around $126 per share today. The market cap stands at about $13 billion.
The Pasadena, California-based REIT’s upcoming dividend increase will take its dividend higher by about 3%, raising the payout from 90 cents to 93 cents per share. This takes its dividend yield to around 2.9%.
The dividend has steadily risen since 2009. The increases have also come frequently. ARE stock last saw a dividend increase in December. Since 2011, shareholders have seen at least two dividend increases in a year. With profits and revenues that have generally risen over the time, the increases should continue.
Still, those increases will not come cheap. The stock trades at a price-to-earnings (P/E) ratio of around 48. Such a P/E remains high, particularly for a REIT. Also, the dividend yield of 2.9% stands well below the average in the sector.
The appeal of this stock lies in the increasing stock price. For that reason, investors should only buy ARE stock if they want both growth and income.
REITS Likely to Have Dividend Increases: Granite Point Mortgage Trust (GPMT)
Dividend Yield: 8.5%
Granite Point Mortgage Trust Inc (NYSE:GPMT), which focuses on senior floating-rate mortgage debt in the commercial real estate sector, just announced a dividend increase. The New York-based REIT’s upcoming dividend increase will raise the payout to 40 cents per share. That represents an increase from the previous two quarters where shareholders received 38 cents per share.
Since its IPO took place in June 2017, this will represent only its fourth dividend payout in company history and its second dividend increase. However, at a yield of about 8.5%, the dividend stands well above the average for REITs. Still, investors have seen little movement in the stock’s one-year history. GPMT stock launched its IPO one year ago at a price of $19.50 per share. The stock today trades at just under $19 per share.
That could change. Profit forecasts for this year stand at $1.64 per share, which is only slightly higher than the current dividend. However, analysts expect annual profits to climb to $1.90 per share in 2019 and $2.23 per share in 2020.
With its short history, GPMT stock has yet to face the test of an economic downturn. However, as long as this profit growth continues, investors will derive benefits from both a higher-yield dividend and an increasing stock price.
REITS Likely to Have Dividend Increases: National Retail Properties (NNN)
Dividend Yield: 4.3%
National Retail Properties, Inc. (NYSE:NNN) is a retail rate specializing in the so-called “triple-net-lease.” Such properties are called triple net leases because the tenant must pay for taxes, insurance and maintenance. While that means less rental revenue, it also makes profit levels easier to predict since it is subjected to fewer unexpected expenses.
No dividend increase has yet been announced for NNN. Still, the company has increased the dividend every July since 2010. Shareholders saw a 2-cent increase each year for the last two years. If history serves as an indication, the current 47.5-cents per share quarterly dividend should rise to either 49.5 cents or 50 cents per share. At current levels, the dividend yield stands at about 4.3%, close to the average for all REITs.
The stock price has also seen some movement this year. Since hitting a low of $36.51 per share in February, the stock has risen over 17%. This has taken its P/E ratio to about 30. Investors who buy here might end up paying a high price.
However, investors buying for the long-term take on less risk. Like most REITs, the 2008 financial crisis took the NNN stock price down by more than 50%. Still, the equity returned to its 2007 highs within three years. Best of all, the stock did not see a dividend reduction during the crisis.
I feel a little wary given the high P/E. However, if one is buying NNN stock for the long term, the stability of its business model, particularly during a financial crisis, makes NNN a lucrative long-term investment.
REITS Likely to Have Dividend Increases: Realty Income (O)
Dividend Yield: 4.8%
San Diego-based Realty Income (NYSE:O) owns over 5,000 retail properties, most of which are triple-net-leases, across 49 states and Puerto Rico. The company has enjoyed a 49-year history and has declared 576 consecutive monthly dividends.
On June 20, O announced its dividend increase for July. The REIT’s upcoming dividend increase will take the monthly dividend to 22 cents per share. This represents an increase from the 21.95 cents per share level the company paid in the previous four months. O stock also saw a monthly dividend increase in March. The big increase before that took place in December. Hence, a July increase should not come as a surprise. Also, given the modest level of the increase, the yield of around 4.8% should see little change.
This stable monthly dividend will come at a cost to investors. The current P/E ratio of the company stands at about 48. Though this ratio appears high, it comes in below the stock’s 5-year average P/E of 51.7. Also, the last time the P/E ratio fell below 40 for any length occurred in 2011. Hence, investors should expect the premium to remain in place. Also, the stock has seen a downward trend since July 2016, when it peaked at just under $72 per share.
Still, income investors should watch this stock. If they can buy in at a P/E under 35, a high yield along with gradual dividend increases should make O stock a profitable investment for a long time to come.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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