3 Top REITs For Dividend Investors

Updated on

Income investors are typically interested in stocks with reliable and secure dividends, even during recessions. For this reason, income investors should consider adding REITs to their stock portfolios.

Real Estate Investment Trusts, or REITs, can be a good choice for income investors, as their real asset business offers passive income and often trade with higher yields than most other sectors.

In this article, we will highlight three REITs that look strong from an income and safety perspective.

Digital Realty (DLR)

Digital Realty Trust Inc (NYSE:DLR) is a leader in buying and developing properties for technological uses. Digital Realty’s properties are a combination of data centers that store and process information, technology manufacturing sites and Internet gateway datacenters which allow major metro areas to transmit data. The company operates over 300 facilities in 28 countries on 6 continents.

On July 27th, 2023, Digital Realty reported second quarter 2023 results for the period ending June 30th, 2023. For the quarter, Digital Realty’s revenue came in at $1.4 billion, a 20% increase compared to Q2 2022. During the quarter, the company generated $1.68 in core FFO per share compared to $1.72 per share prior.

Since 2010 Digital Realty increased its FFO-per-share by an average compound rate of 6.1% per year. Acquisitions are a major component of Digital Realty’s growth. For example, in 2017, Digital Realty completed its purchase of DuPont Fabros Technology, a REIT that leased properties to some of the largest tech companies in the world. In 2020 Digital Realty acquired Interxion, a provider of cloud data centers in Europe.

Digital Realty has increased its dividend for 17 consecutive years. The stock has a 3.7% dividend yield. With a dividend payout ratio of approximately 73% of projected FFO for 2023, the dividend is relatively safe.

Digital Realty’s main competitive advantage is that it is among the largest technology REITs in the world. This gives the REIT a size and scale advantage that competitors have difficulty matching. In addition, the company has proven to be able to utilize its balance sheet to fund acquisitions in order to grow FFO and revenues.

WP Carey (WPC)

WP Carey Inc (NYSE:WPC) is one of the largest net lease REITs in the US with a market capitalization of more than $13 billion. The world of net lease REITs is highly fragmented, and WP Carey’s scale is therefore quite attractive in terms of its portfolio diversification.

The trust owns a portfolio of 1,200+ net lease properties that are operationally-critical, and cover more than 140 million square feet of leased space. WP Carey specializes in single-tenant industrial, warehouse, office, retail and self-storage properties with built-in rent escalations. The trust operates primarily in the US, but has some exposure to parts of Europe as well.

In the 2023 second quarter, adjusted funds from operation were $1.36 per diluted share, up 3.8% from $1.31 per diluted share for the 2022 second quarter. For the 2023 full year, the company narrowed its guidance range for total AFFO to between $5.32 and $5.38 per diluted share.

WP Carey generated FFO-per-share growth at a rate of 6% annually between 2009 and 2019, which is a very solid growth rate for a real estate investment trust, as these usually are low-growth vehicles. FFO-per-share declined during the pandemic but improved on a year-over-year basis in 2021 and 2022. W. P. Carey invests additional money into new properties continuously.

Since 2012 the REIT invested more than $10 billion into new assets by either purchasing entire REITs or through asset/portfolio purchases. W. P. Carey can access debt markets at favorable rates, which lowers the trust’s cost of capital, which then allows for improved investment spreads.

WP Carey was founded in 1973 and generates about $1.3 billion in annual revenue. It also has an impressive 28-year dividend increase streak, which is rare among REITs. WPC stock yields 6.5%.

Realty Income (O)

Realty Income Corp (NYSE:O) is a retail REIT. Its triple-net leases mean that its operating costs are very low, and since it primarily invests in resilient standalone assets that are occupied by grocers, dollar stores, and more.

Realty Income has a strong track record when it comes to growing its funds from operations as well as its dividend. FFO-per-share has risen by 7% a year over the last decade and was up during every single year in that time frame — even during the pandemic, FFO-per-share continued to climb.

On August 2nd, 2023, Realty Income released its Q2 results. For the quarter ending June 30, 2023, the company reported net income available to common stockholders of $195.4 million, equivalent to $0.29 per share. Normalized FFO available to common stockholders was $688.3 million, or $1.02 per share, while AFFO available to common stockholders stood at $671.7 million, or $1.00 per share.

Future growth will be led by new property acquisitions. Last quarter Realty Income invested $3.1 billion in 710 properties and properties under development or expansion, yielding an initial weighted average cash lease yield of 6.9%. The company’s Net Debt to Annualized Pro Forma Adjusted EBITDAre ratio was 5.3x.

Realty Income has increased its dividend for 26 consecutive years. Realty Income is a Dividend Aristocrat. At current prices, Realty Income is trading with a dividend yield of 5.4%. Realty Income’s dividend payout ratio is just under 80%, based on the company’s guidance for this year’s FFO-per-share.

We believe that the dividend is very safe, based on Realty Income’s strong track record, recession resilience, and also due to the fact that its dividend payout ratio actually declined over the last decade, despite annual dividend increases.