In the midst of a bear market, with rising interest rates and the threat of a prolonged recession in the air, real estate investment trust (REIT) stocks have endured tremendous price declines. Given this, it isn’t easy to find REITs that could see dividend increases soon.
Two questions come to mind. Why would a company raise its dividend when the yield is already increasing with each drop in price? And how do you find REITs with the dividend well-covered by funds from operations (FFO) and with such stable tenants that a recession is unlikely to crush the rent collection?
Here are three retail REITs that — despite all the current market fears — could actually see dividend increases soon:
Agree Realty Corp. (NYSE:ADC) is a net lease REIT with 34 million square feet across 1,607 properties nationwide. Its tenants include Walmart Inc. (NYSE:WMT), Home Depot Inc. (NYSE:HD), TJ Maxx, AT&T Inc. (NYSE:T), CVS Pharmacy Inc., Aldi, Wawa Inc. and many other well-established companies not likely to miss rent payments regardless of economic conditions.
Agree Realty Corp. paid a quarterly dividend until 2021 and then began making monthly payments instead. Over the past five years, the annual dividend has increased by 34% with no cuts nor eliminations. The last increase was in April.
Agree Realty Corp.’s FFO from last quarter was 98 cents, an increase from 86 cents year-over-year. This easily covers three months of dividends totaling 70 cents. The current dividend yield is 4.2%.
With a stable tenant base, solid dividend history and ample FFO, Agree Realty Corp. is a company that could increase its dividend soon.
National Retail Properties Inc. (NYSE:NNN) is a REIT that owns a diversified group of stand-alone retail outlets across the U.S. Like Agree Realty, it has a stable tenant base with names like 7-Eleven Inc., Sunoco LP, Best Buy Co. Inc. (NYSE:BBY), Camping World Holdings Inc. (NYSE:CWH), BJ’s Wholesale Club Holdings Inc. (NYSE:BJ) and Chuck E. Cheese. The recent occupancy rate of its properties is 99.1% with an average lease term of over 10 years.
The most recent FFO for National Retail Properties was 77 cents, easily covering the 55-cent quarterly dividend. This is a REIT that has raised dividends for 32 consecutive years, including during the worst months of the 2020 COVID-19 pandemic. Over the past five years, National Retail Properties has raised its dividend by 15.7%. The current dividend yields 5.6%.
Based on its tenant portfolio and dividend history, National Retail Properties has room to continue growing its dividend in the near future.
Realty Income Corp. (NYSE:O) is one of the most well-known and popular REITs on Wall Street. This monthly dividend payer and member of the S&P 500 has increased its dividend 117 times since its initial public offering (IPO) in 1994.
Realty Income owns and leases over 11,400 commercial properties on long-term net lease agreements. Its 1,100 tenants include Walgreen Co., 7-Eleven, Dollar General Corp. (NYSE:DG), Dollar Tree/Family Dollar, Walmart, FedEx Corp. (NYSE:FDX) and BJ’s Wholesale Club. This past quarter, Realty Income finished with an occupancy rate of 98.9%, a 10-year high.
The current monthly dividend of $0.248, or $2.98 annual, now yields over 5%. This is unusually high for Realty Income and reflects its price decline from a high of $75.40 to a recent price of $56.73. FFO from the latest quarter was 97 cents, well above the 88 cents from the same quarter in 2021 and easily covering three months of dividends totaling 74 cents.
Given its history, increasing FFO and stable tenant list, Realty Income could very well see another dividend increase soon.
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