10 REITs With The Fastest-Growing Payouts

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Includes: ABR, AMT, BXP, COR, ELS, GTY, NXRT, PSB, TRNO, VICI
by: Brad Thomas
Summary

One of the best ways for us to screen for the top-performing REITs is to consider the list of the top dividend growers.

These 10 REITs have solid dividends, dividend yields and dividend payout ratios.

VICI Properties is the only Strong Buy we have on the 10 fastest growing list.

“Dividend investing often involves a trade-off between stocks that offer higher yields and those that sport better growth.” So said long-time investments analyst and writer Lawrence C. Strauss in a Jan. 10 Barron’s article.

In the very next line, he added, “The higher yielders tend to grow their payouts at a slower clip, and the faster growers often have smaller yields.”

If you can say any two things about Lawrence C. Strauss, one would have to be that he certainly likes his dividends, a focus I can’t and won’t fault him for. In May alone, eight of his 10 articles (as of early morning on May 14) directly referenced dividends in their titles. And another one strongly referenced it.

The one exception to the rule was on May 1, when he wrote about Royal Caribbean’s (NYSE:RCL) stock swinging upward, a dividend-paying stock, for the record.

Curious though that track record makes me, I didn’t go back through his entire career of writing for Barron’s to see how strong that trend stayed throughout the years. According to his Barron’s bio, he’s been working there since 1998.

And that’s simply too many articles to sort through for curiosity’s sake alone.

But considering his track record and the quality of his articles that I have read, I’m very willing to quote him as an expert source, especially when he makes such accurate statements as the one we began this piece with.

More often than not, investing in dividend-paying stocks really does drive down your growth potential.

That’s why it’s so important to have a healthy, balanced portfolio. By this, I mean a diversified mix of growth opportunities and stable income opportunities. It’s that combination that builds the most sustainable kind of returns possible, particularly if you care anything about sleeping well at night.

With that said – and every single bit of it is true – there are some companies you can buy into that offer the best of both worlds for the price of one dividend-paying stock. Better yet, there are some real estate investment trusts (REITs) that stand out in this regard.

Consider them to be the ultimate stock market BOGO sales around. Buy one, get the other for free.

Some Moo-ving Definitions You Need to Know

Hearing how “there are some companies you can buy into that offer the best of both worlds” – positive stock price evolution and payouts alike – you might be inspired to start looking for the highest-paying dividend-yielding REITs on the block.

But hold your real estate horses there, cowboy, 'cause there’s a little bit more to it than that. Keep in mind that not all cattle sales are worthwhile. There’s just some beef you want to “steer” away from.

Before the cows come home, here’s how to discern the difference. Let’s break it down by definitions.

Dividend: A financial “thank you” to shareholders for backing a company, this kind of payout is designed to signify the health, profit, and stability of a company.

Notice how they’re “designed” to signify a business’ positive properties. They don’t, however, guarantee anything, which leads us to our next important definitions…

Dividend Yield: A comparison between the dividend amount and the current share price.

Dividend Payout Ratio: The precise percentage of a company’s earnings being paid out in the form of dividends.

Here’s why understanding these terms are so important.

Dividends That Don’t Work

A higher dividend yield sounds good right off the bat. And, to be sure, sometimes it is. But you should never buy into a company based on that figure alone.

For that matter, you should never buy into a company based on any one figure or fact, no matter what it may be. Smart investing requires a big-picture view of each and every business you want to put your money into.

Otherwise, you could find yourself with lower (i.e., cut) yields and stunted growth. Since that’s the very opposite of what we’re shooting for in our portfolios, we probably want to prioritize payout ratios when delving into the dividend department.

It can be a more useful metric to evaluate a company’s financial status: Whether it’s in a strong, fair, or poor condition. Is it handling its money wisely? Does it have enough to keep its dividend not only up, but growing as well?

If the dividend payout ratio is too high, as in 95% or higher, you should automatically be concerned. It’s not a death knell for the company or the end of the larger world. But it does make for a decent indication that the dividend isn’t sustainable.

Look into those kinds of businesses a lot further before you act. Have they cut their dividends before? Chances are, they have, a dividend-yielding crime that's very rarely excusable.

Fortunately, that isn’t the case with our 10 REITs below. They’ve got solid dividends, dividend yields and dividend payout ratios that I’m more than happy to put out there.

U.S. Dividend Growth Is Still Looking Strong

Going back to Lawrence Strauss for a moment, he mentioned in another article this January – this one on the 23rd – how, “in the U.S., total dividends paid by companies of all sizes are forecast to grow 8% this year to $627.6 billion – a slowdown from last year’s (2018) increase of 10.6%.”

Note that he’s referring to dividend increases, not dividend payout ratios. So this does nothing to temper my enthusiasm about buying into the automatic dividend payments that REITs offer. Not the numbers. Not the so-called “slowdown.”

According to NAREIT, dividends paid by equity and mortgage REITs totaled $13.9 billion in Q1 2019, a 1.6% decrease from the prior quarter, and marginally above the Q4 2017.

Note: A merger transaction prompted a shift forward of dividend payments that would normally have taken place in Q4-18 into Q3-18. Had this shift not occurred, total dividend payments in Q4-18 would have been approximately 1.9% higher Q/Q and 2.1% above over one year earlier.

There’s a lot of room to run with our Top 10 list below….

The Top 10 Fastest-Growing REITs

One of the best ways for us to screen for the top-performing REITs is to consider the list of the top dividend growers. Using the below-referenced data provided by Sentieo we selected the REITs that are forecasted to grow their dividend the fastest in 2019. Here’s the list:

Source: Sentieo

Now consider the data for each of these top 10 REITs:

American Tower (AMT)

2019 FFO/share: $7.79

2019 Div/share: $3.74

Payout Ratio: 48%

5-Year Dividend Growth: 21.2%

Price: $200.84

Dividend Yield: 1.59%

iREIT Recommendation: HOLD (due to valuation)

PS Business Parks (PSB)

2019 FFO/share: $6.60

2019 Div/share: $4.49

Payout Ratio: 67.9%

5-Year Dividend Growth: 18%

Price: $157.51

Dividend Yield: 2.55%

iREIT Recommendation: BUY (PB)

VICI Properties (OTC:VICI)

2019 FFO/share: $1.51

2019 Div/share: $1.17

Payout Ratio: 77.3%

5-Year Dividend Growth: NA (IPO’d 2018)

Price: $22.30

Dividend Yield: 5.05%

iREIT Recommendation: STRONG BUY

Boston Properties (BXP)

2019 FFO/share: $6.98

2019 Div/share: $3.86

Payout Ratio: 55.3%

5-Year Dividend Growth: 5.41%

Price: $133.84

Dividend Yield: 2.63%

iREIT Recommendation: BUY

Equity Lifestyle (ELS)

2019 FFO/share: $4.17

2019 Div/share: $2.45

Payout Ratio: 58.7%

5-Year Dividend Growth: 12.6%

Price: $117.86

Dividend Yield: 1.8%

iREIT Recommendation: HOLD (due to valuation)

Arbor Realty Trust (ABR)

2019 FFO/share: $1.21

2019 Div/share: $1.12

Payout Ratio: 92%

5-Year Dividend Growth: 14.92%

Price: $13.42

Dividend Yield: 7.82%

iREIT Recommendation: HOLD (due to valuation)

CorSite (COR)

2019 FFO/share: $5.22

2019 Div/share: $4.50

Payout Ratio: 86.2%

5-Year Dividend Growth: 24.8%

Price: $116.11

Dividend Yield: 3.61%

iREIT Recommendation: HOLD

Terreno Realty (TRNO)

2019 FFO/share: 1.42

2019 Div/share: 0.99

Payout Ratio: 70.1%

5-Year Dividend Growth: 11.3%

Price: $45.46

Dividend Yield: 2.03%

iREIT Recommendation: HOLD (due to valuation)

NexPoint Residential (NXRT)

2019 FFO/share: $1.88

2019 Div/share: $1.12

Payout Ratio: 59.5%

5-Year Dividend Growth: 14.7%

Price: $41.07

Dividend Yield: 2.56%

iREIT Recommendation: HOLD

Getty Realty (GTY)

2019 FFO/share: $1.78

2019 Div/share: $1.41

Payout Ratio: 79%

5-Year Dividend Growth: 9.7%

Price: $32.6

Dividend Yield: 4.12%

iREIT Recommendation: HOLD (due to valuation)

In summary: VICI Properties is the only Strong Buy we have on the 10 fastest-growing list. I'm in Las Vegas this week attending The MoneyShow and ReCon and I pan to write a detailed article later this week for Marketplace members on VICI. I agree with Michael Boyd, “ VICI is a hidden gem of a REIT,” and fortunately we jumped on the train early as the company enjoyed “the lowest payout ratio... and has the best potential to grow its dividend.” Since I published my initial research report on VICI shares have returned ~14% and since we upgraded to a Strong Buy the company has returned ~20%.

Final Thought: “The safest dividend is the one that’s just been raised.” - Josh Peters

Disclosure: I am/we are long AMT, PSB, VICI, BXP, ELS, ABR, COR, GTY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.