As you know, I review the list of dividend increases every single week as part of my monitoring process. I usually focus my attention on the ones that have raised distributions every single year for at least a decade. Over the past week, there were two real estate investment trusts, which raised dividends for their shareholders. These are well known, and widely held Real Estate Investment Trusts (REITs). REITs are a great way to obtain exposure to real estate for DYI investors. The companies include:
Realty Income Corporation (O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. Realty Income raised its monthly dividend to 21.10 cents/share. This REIT is a dependable dividend achiever which has rewarded shareholders with a raise for 23 years in a row. Realty Income calls itself “The Monthly Dividend Company”. This is a very well run REIT, whose sole purpose is to shower shareholders with monthly dividend checks. I really like the stability of the long-term triple-net type leases that Realty Income uses to rent out its properties. The long-term track record of dividend increases is very impressive.
Roubaix Composite February 2021 Net Return +7.87%; YTD Net Return +11.34%
The February 2021 monthly tearsheet for the Roubaix Fund Composite, a fundamental long/short equity strategy focused on small and mid cap U.S. stocks. Q4 2020 hedge fund letters, conferences and more Roubaix Composite Performance Roubaix generated a net return of +7.87% in February relative to the long-only benchmark Russell 2000 Index total return of +6.23% Read More
The ten year dividend growth rate is 4.70%/year. FFO per share has increased at a rate of 5.20%/year over the past decade. I would expect annual dividend growth in the 4% – 5% range over the next decade, unless a big accretive acquisition is made. Unfortunately this blue chip REIT is priced aggressively at 19.60 times expected FFO (20.80 times FY 2016 FFO) and yields 4.30%. I would consider it around 16 times FFO or at a minimum yield of 5%
W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. The company not only invests in triple-net lease properties throughout the world, but it also managed privately held REITs. As a result, its sources of revenues are derived from the stable and recurring rents from those properties, which are usually leased to tenants under long-term leases. Those triple-net leases also allow for rent escalation over time. Under a triple-net lease, the tenant is required to pay all expenditures associated with maintaining and operating the property under lease. W.P.Carey raised its quarterly dividend to 99.50 cents/share. This REIT is a dividend achiever which has rewarded shareholders with a raise for 20 years in a row. The ten year dividend growth rate is 8.10%/year. FFO/share increased from $3.34/share in 2007 to $4.86/share in 2016. I would be surprised if annual dividend growth exceeds 3% – 4%/year over the next decade for W.P. Carey. This REIT is cheap at 12.80 times FFO and yields 6.40%. Check my analysis of W.P. Carey for more information about the REIT.
The main risks behind REITs are rising interest rates, which could make cost of capital more expensive. In addition, it would make it more expensive to be rolling debt that is maturing. On the other hand, rising rates coupled with increased economic activity may be bullish for real estate, and offset the effect of increasing interest rates. In the case of W.P. Carey, there is also an additional risk with foreign revenues, whose exposure is hedged.
Full Disclosure: My family owns stakes in O and WPC