michaelquirk
Proper now, REIT dividend yields are the very best they’ve been in a very long time.
It’s because their share costs have dropped considerably over the previous 12 months, whilst most REITs grew their money move and hiked their dividend:
A decrease share value coupled with a better dividend leads to a better dividend yield…
Yields are out of the blue so excessive that you’ll find high-quality REITs providing >8% dividend yields. Simply to present you a number of examples:
- EPR Properties (EPR) is obtainable at a 9% dividend yield.
- International Medical REIT (GMRE) is obtainable at a 9% dividend yield.
- Easterly Authorities Properties (DEA) is obtainable at an 8% yield.
- Douglas Emmett (DEI) is obtainable at a ten% dividend yield.
- Boston Properties (BXP) is obtainable at an ~8% dividend yield.
A number of years in the past, buyers would have dreamed of such excessive yields coming from REITs that may develop their money move.
But, at present, few buyers seem like shopping for these REITs on account of fears of dividend cuts. Fairly a number of REITs have lately introduced dividend cuts and it seems to be inflicting numerous considerations:
- Gladstone Business (GOOD) lower its dividend by 20%.
- SL Inexperienced (SLG) lower its dividend by 13%.
- Vornado Realty Belief (VNO) lower its dividend by 29%.
Is that this turning into a widespread concern throughout the REIT sector? Will your REITs additionally lower their dividend?
The reply is that it relies upon, however likely, no, they will not lower their dividend. Right now, yields are so excessive within the REIT sector as a result of valuations are low, however regardless of that, fundamentals are robust typically.
Stability sheets are the strongest they’ve ever been with a low 35% LTV on common and lengthy debt maturities at 8 years:
Money flows additionally continue to grow at an excellent tempo. I only in the near past attended the Citi Global Property Conference in Hollywood, Florida, and bought to speak to loads of REIT CEOs and it appears that evidently most of them anticipate 3-5% same-property NOI development in 2023.
Right now, the rents of many REITs are under market ranges as a result of their lengthy leases prevented them from mountain climbing rents lately when rents grew quickly. To offer you an instance: Alexandria (ARE) is ready to hike its rents by 20%+ as its leases expire as a result of they’re under market:
Alexandria Actual Property Equities
Dividend payout ratios are additionally traditionally low at present as a result of money flows grew sooner than dividend funds lately. This leaves good margin of security whilst instances get more durable.
So no, your REITs are unlikely to chop their dividend, and that is regardless of now providing excessive dividend yields.
However there are exceptions.
Most up-to-date dividend cuts have been within the workplace sector and I might anticipate many extra of these within the coming quarters.
Workplace REITs are chopping their dividends as a result of they’re going through an ideal storm that mixes:
- Declining money move
- Declining property values
- Tightening lending
- Rising rates of interest
- And elevated want for capex
SL Inexperienced
This may pressure many workplace REITs to chop their dividends within the coming years as a result of accessing capital at an inexpensive price has grow to be rather a lot more durable they usually now out of the blue have to closely reinvest of their properties to maintain them fascinating.
However you will need to do not forget that solely a minority of REITs spend money on workplace buildings. There are over 20 totally different property sectors and the overwhelming majority of them are at present doing simply high-quality:
- Industrial properties
- Sunbelt residence communities
- Single-family properties
- Manufactured housing communities
- Farmland
- Life science buildings
- Cell towers
- and so on.
Camden Property Belief
So simply because a number of workplace REITs have lower their dividend… doesn’t imply that different REITs will lower as nicely.
Right now, fundamentals are robust with rising money flows, low debt, and secure payout ratios typically.
What’s an instance of a high-yielding REIT that I’m shopping for at present?
EPR Properties (EPR).
It’s provided at a 9% dividend yield, which can depart you pondering that its dividend should be at excessive danger… however in actuality, it’s well-covered with a 75% payout ratio and it was hiked by 10% simply final 12 months.
I believe that its dividend shall be hiked once more this 12 months as a result of the REIT has lengthy leases that embrace ~2% annual lease hikes and additionally it is buying extra properties with its retained revenue.
A lot of the firm’s belongings are experiential web lease properties similar to water parks, golf complexes, ski areas, and high-quality film theaters.
EPR Properties
EPR Properties
EPR Properties
Most of those properties are doing higher than ever with near-3x lease protection. They’re doing exceptionally nicely within the post-covid world as individuals are in search of extra experiences.
Even the film theaters are recovering properly. Amazon (AMZN) and Apple (AAPL) lately introduced that they may spend billions to supply films for theaters within the coming years. Paramount (PARA), Disney (DIS) and others at the moment are additionally returning to theaters after realizing that they could not earn cash with their direct-to-streaming methods. The underside line is that the Netflix (NFLX) mannequin did not kill theaters and they’re now recovering. EPR’s theaters are among the many most efficient in your complete nation and they’re already worthwhile at present even because the film slate has not but absolutely recovered.
That makes EPR a singular, high-yielding alternative with development and upside potential.
Backside Line
Simply because one thing has a excessive yield doesn’t imply that it’ll lower its dividend. Right now, REITs are traditionally low cost and so naturally, they are going to be provided at excessive dividend yields. A excessive yield might be as a purple flag and warrant extra due diligence, however do not let it cease you.