3 high quality, high yield REITs bucking the market trend

Real estate investment funds (REITs) are retired at this time. Many are paying dividends that are three or also four times the market average.

In addition, these owners are inexpensive. They are trading at multiples of the cash flow that make them business compared to the S&P 500.

Why are these offers available? Rates on the rise.

In the short term, higher rates mean higher capital costs for REITs and more competition for income (as bond yields rise). This brought down real estate stocks, which is great news for us dividend investors, because it means them pay more.

Today we’re going to look at an amazing package of three REITs that are producing 3x to 4x the broader stock market and are outpacing not only the industry in recent months, but also the much better performing S&P 500.

And by the way, each of these three REITs has have raised dividends in the last year. We go into them.

Innovative Industrial Property (IIPR)

Dividend yield: 6.5%

Warehouses and fulfillment centers are among the most popular types of REITs, but despite the name, it’s not that Innovative Industrial Property (IIPR) is.

It’s a weed REIT.

To be more specific, IIPR is a rare real estate game that provides capital for the regulated cannabis industry. It has a sale and leaseback program where it buys independent industrial and retail properties (mainly marijuana growing facilities) and leases them back, providing cannabis operators with large inflows of capital to expand their operations.

The resulting portfolio currently stands at 111 properties comprising approximately 8.7 million leasable square feet in 19 states.

Innovative industrial properties have put the REIT sector to shame since its initial public offering in December 2016, returning over 600% to 28% of the sector, but like many growth stocks, the IIPR struggled in 2022. The stock is down. by almost 60% on an annual basis. to date even with a recent rebound, reflecting the deep pain felt in the marijuana industry.

But the IIPR has diverged from both real estate and cannabis over the past three months, on 19% versus mid-adolescence losses for these two market areas.

A great third quarter report helped. The company’s adjusted funds of operations (AFFO) increased 25% year-over-year to $ 2.13 per share, far more than needed to cover the $ 1.80 per share dividend. (And AFFO for nine months has increased by 32%).

That dividend, by the way, grew like a, er, weed. That $ 1.80 per share is 20% more than it was a year ago, and it’s up 64% a year since the first 15-cent payment in 2017.

The rating is OK, but certainly not great. Despite a massive stock bleed in 2022, the IIPR is trading at just over 13 times the expected AFFO, reflecting a lot of residual confidence in the stock despite its precipitous fall.

Simone real estate group

SPG
(GSP)

Dividend yield: 6.2%

Whoever said malls are dead, well, they might still be right, but the mall mega-REIT Simon Property Group (SPG) it is at least showing signs of life.

Simon has more than 250 properties worldwide, including locations in the 25 largest US markets by population. That laser focus on brick-and-mortar real estate naturally made him a pariah during the onset of COVID, and while SPG shares eventually came to a whisper of their pre-COVID highs last year, they struggled again in the 2022, very well over 20%.

Simon had a third quarter, where he beat FFO estimates, achieved an occupancy improvement of 160 basis points year-on-year to 94.5%, signed 900 new leases, and raised minimum base rents. by just under 2%.

What fuels success? Well, the trend of online shopping, which accelerated during COVID, has receded slightly, convincing companies to continue opening stores. But SPG and other mall operators are getting more creative about their spaces, opening them up to co-working suites, spas, fitness centers, and other non-traditional mall tenants.

Also noteworthy is the fact that Simon has increased his payout to $ 1.80 per share, which is about 9% more on an annual basis.

To be clear: SPG cut its dividend by 38% in 2020, to $ 1.30 per share from $ 2.10 previously. So shareholders aren’t quite right yet, but SPG has increased its payout every quarter for two years now. And that dividend is only about 60% of the third quarter FFO, so coverage isn’t an issue here.

What is at stake is the main headwind that SPG will face, which is the recession predicted by nearly all economists and strategists. Shopping malls in general, and GSPs in particular, inherently struggle when the economy falters. So there is still room for Simon’s situation to get worse before, and if, eventually, it gets better.

Getty Realty (GTY)

Dividend yield: 5.4%

Single-tenant retail REIT specialist Getty Realty (GTY) is a unicorn in 2022. Not only is it outperforming the real estate sector in recent months and all year, but it has actually made gains (on a total return basis) so far in 2022.

GTY defines the term “boring is beautiful”.

This is a huge net-lease REIT, boasting more than 1,000 properties in 38 states and Washington, DC. But its dealers are definitely yawning – car washes, auto parts and service shops, convenience stores and gas stations. Tenants include Valvolina (VVV

VV
)
, PA (BP) and 7-Eleven.

The attractiveness here, therefore, is clearly not brutal growth: it is stability. And you will find it in more than just the real estate portfolio.

Many of his indebted brothers are busy sweating the costs of higher interest rates. But Baird’s team of analysts highlights Getty’s “low leverage, no short-term debt maturities and no apparent problems on the horizon.” This has allowed them to focus on investing (in both acquisition and development) of new properties while other businesses are looking to exit.

The dividend paints a similar picture. The most recent payout hike was a 5% increase to 41 cents per share, which is exactly in line with the 5.1% annual average dividend growth over the past five years. But compared to many REITs that had to pull out of the dividend chain during COVID, that kind of consistency is welcome.

Brett Owens is the chief investment strategist for Contrary perspective. For more great earning ideas, get your free copy of his latest special report: Your Early Retirement Portfolio: Huge dividends, every month, forever.

Disclosure: none

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