Income investors looking for high-yield stocks with safe dividends should take a closer look at Real Estate Investment Trusts, or “REITs”.The appeal of REITs is that they provide investors with the opportunity to profit from real estate, without the need to own property.REITs are required to distribute the vast majority of their taxable income to shareholders, in exchange for a favorable tax status. As a result, investors can find high dividend yields to be very common among REITs.Of course, investors need to make sure the underlying dividend is safe, particularly in an environment of rising interest rates and possible recession. These 3 REITs have safe dividends, even in a recession, along with their high yields.
STAG Industrial (STAG)
STAG Industrial is an owner and operator of industrial real estate. It is focused on single-tenant industrial properties and has ~563 buildings across 41 states in the United States. The focus of this REIT on single-tenant properties might create higher risk compared to multi-tenant properties, as the former are either fully occupied or completely vacant. However, STAG Industrial executes a deep quantitative and qualitative analysis on its tenants.As a result, it has incurred credit losses that have been less than 0.1% of its revenues since its IPO. As per the latest data, 53% of the tenants are publicly rated and 31% of the tenants are rated “investment grade.” The company typically does business with established tenants to reduce risk.In late October, STAG Industrial reported (10/26/23) financial results for the third quarter of fiscal 2023. Core FFO per share grew 3.5% over the prior year’s quarter, from $0.57 to $0.59, exceeding the analysts’ consensus by $0.02, thanks to the sustained strength of the REIT’s tenants and material hikes in rent rates. Net operating income grew 7% over the prior year’s quarter while the occupancy rate edged down sequentially from 97.7% to 97.6% and interest expense increased 12% year-on-year due to high interest rates. STAG Industrial has proved fairly resilient to the surge of interest rates to 16-year highs thanks to its decent balance sheet.STAG Industrial has a well-laddered lease maturity schedule, with a weighted average lease term of 4.9 years and about half of the leases maturing after the end of 2025. Thus, the cash flows of the REIT can be considered fairly reliable under normal business conditions.STAG has increased its dividend for 12 consecutive years. STAG Industrial currently offers a 4.1% yield and has never cut its dividend throughout its short history.
Phillips Edison & Company (PECO)
Phillips Edison & Company is a real estate investment trust that is one of the nation’s largest owners and operators of omni-channel grocery-anchored shopping centers. Additionally, the company runs a third-party investment management business providing property management and advisory services to unconsolidated joint ventures and one private fund.On October 31st, 2023, Phillips Edison & Company reported its Q3 results for the period ending September 30th, 2023. For the quarter, total revenues came in at $152.5 million, 4.7% higher year-over-year. Same-store NOI improved by 3.2% to $99.9 million, new and renewal leasing spreads landed at 26.3% and 16.9%, respectively, while occupancy remained at a record 97.8% – all of which were positive developments.Phillips Edison’s FFO growth has been rather robust over the years, despite the company operating in a rather unfavorable real estate sub-sector. By creating omni-channel grocery-anchored shopping experiences, the company’s properties enjoy resilient traffic. Future growth is to be powered by accretive acquisitions, high retention rates, and a focus on increasing occupancy.Phillips Edison’s dividend should be relatively safe at its current levels, following a healthy payout ratio. Shares currently yield 3.3%.
EPR Properties (EPR)
EPR Properties is a specialty real estate investment trust, or REIT, that invests in properties in specific market segments that require industry knowledge to operate effectively. It selects properties it believes have strong return potential in Entertainment, Recreation, and Education. The REIT structures its investments as triple net, a structure that places the operating costs of the property on the tenants, not the REIT. The portfolio includes almost $7 billion in investments across 300+ locations in 44 states, including over 250 tenants.EPR reported third quarter earnings on October 25th, 2023, and results were better than expected on both the top and bottom lines. Funds-from-operations came to $1.47 per share, which was eight cents better than expected. Revenue was $189 million, 17% higher year-over-year, and better than estimates by almost $26 million.The company said it continues to see ongoing stabilization in its portfolio, as well as stronger box office sales, and a master lease agreement with Regal, a large movie theater tenant. Disposition proceeds are expected to be between $45 million and $60 million, up from the prior range of $31 million to $41 million.EPR’s competitive advantage is its portfolio of specialized properties. EPR has methodically identified the most profitable properties through years of experience and focuses its investments in these areas. It certainly isn’t immune to recessions, but the REIT has a healthy dividend payout ratio near 70% for 2023. EPR stock yields 7.2%.More By This Author:These 3 Dividend Stocks Are Undervalued Using This Key Valuation Metric
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