Real estate investment trusts (REITs), which are long preferred as an alternative investment option to hedge market risks, require upgrades to keep up with the Federal Reserve’s most aggressive rate-hike policy in decades.
While some have been debating a long overdue Fed pivot, the consensus is that the central bank will hike benchmark interest rates by another three-quarter of a percentage point in the next Federal Open Market Committee (FOMC) meeting scheduled for the first week of November.
While the cooling housing markets are cause for concern, several fundamentally sound REITs are poised to hike their dividend rates in the near term. Many REITs that focus on financing loans on commercial and residential mortgages are benefiting from the increased interest rates as they translate to increased interest income. As the economy recovers from the pandemic disruption, reopening of commercial properties amid surging pent-up demand and strong consumer spending bodes well for REITs managing such commercial real estate. Take a closer look.
Realty Income Corp. (NYSE: O)
Also known as the monthly dividend company, Realty Income has a long-standing history of steadfastly rising monthly dividend payouts. A constituent of the S&P 500 Index, Realty Income has raised its dividend 117 times since its public listing in 1994, with the latest hike taking place last month.
The REIT pays $2.976 in dividends annually spread over 12 monthly installments, yielding 4.78% on the current price. It is slated to pay its 628th consecutive dividend payment of $0.248 per share on Nov. 15.
Realty Income owns more than 11,400 commercial properties across the U.S., Puerto Rico, the United Kingdom and Spain. Despite market headwinds, the REIT’s operating metrics and financials have remained strong, as its normalized funds from operations (FFO) per share increased 20.9% year-over-year to $0.97 in the third quarter that ended Sept. 30.
Analysts expect Realty Income’s annual FFO to rise 34.43% year-over-year in fiscal 2022, which might result in further dividend hikes.
VICI Properties Inc. (NYSE: VICI)
Formed as a spinoff from Caesars Entertainment Inc., VICI owns and operates casino properties across the U.S. The S&P 500 company is one of the largest names in the gaming, hospitality and entertainment spaces in the country, with more than 450 restaurants and 43 gaming facilities.
VICI pays $1.56 annually, yielding 4.86% on its current stock price. The REIT has charted an impressive dividend growth trajectory, as its payouts increased at a compound annual growth rate (CAGR) of 8.21% over the past three years. In the fiscal third quarter, VICI raised its dividends by 8.3% year-over-year to $0.39, thanks to an 8.5% rise in adjusted funds from operations (AFFO) during the three-month period.
“VICI’s strong third-quarter financial performance reflects the full impact of our extensive acquisition and financing activity over the past two years,” VICI Properties CEO Edward Pitoniak said.
The company recently entered the wellness sector through an investment with Canyon Ranch. This allows VICI to tap into the multitrillion-dollar place-based wellness industry, fuelling its growth. It is safe to assume that VICI Properties is well-positioned to raise its dividend payouts in the near term.
Agree Realty Corp. (NYSE: ADC)
Agree Realty focuses on the acquisition and development of commercial leasable properties across the U.S. It owns approximately 1,707 properties totaling 35.8 million square feet in 48 states across the country as of Sept. 30 and is one of the best-performing publicly traded REITs – up $1.09 per share over the past five days. The REIT serves as a landlord to some of the most reputed U.S. corporations, including Costco Wholesale Corp., TJX Companies Inc., Walmart Inc. and Sherwin-Williams Co.
Agree Realty pays $2.724 in dividends annually, which yields 4.21% on the current price. The REIT, which follows a monthly distribution schedule, raised its dividends by 2.6% month-over-month to $0.24 per share on Oct. 13. This equates to a 5.7% annualized rise in dividends to $2.724. The company also raised dividends on its preferred stock. Agree Realty had raised its dividends by 8.7% year-over-year in the first half of 2022.
Agree Realty has been on track with its growth targets and acquisitions, regardless of the volatile market conditions. The REIT raised its acquisition guidance by $200 million to $1.7 billion for fiscal 2022 after investing a record $860 million in retail net lease properties in the first half of the year.
Agree Realty released its third-quarter results after the market closed on Nov. 2. The REIT grew its core FFO per share by 5.6% to $0.97 and its AFFO per share by 7.8% to $0.96.
The continued growth of the REIT’s portfolio and its AFFO per share could result in further dividend increases in the near future.
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