Reliability is a value that investors should not take lightly. Dividend-paying stocks like real estate investment trusts (REITs) have become well known for their reliability, providing a passive income stream and reliable returns in times of high volatility.
Real estate income (O -0.11%), Central American apartment communities (MAA -0.98%)and well tower (GOOD -0.53%) are three fantastic REITs that rarely come up for sale. If you didn’t buy during the last market decline, here’s a closer look at these reliable dividend-paying stocks and why these three Motley Fool contributors think they’re great buys for the next market decline.
Dividend record hard to beat
Liz Brumer-Smith (real estate income): When it comes to reliability, few REITs can compete with Realty Income. The net lease REIT, which owns and leases a wide range of commercial properties around the world, is a dividend aristocrat, meaning it has increased its dividends consistently for more than 25 years. It is also one of the few REITs to pay dividends monthly.
The company has an absolutely massive portfolio of over 11,400 properties, with a sizable balance sheet and plenty of capital to help it continue to grow. In addition, his track record is unbeatable. The company has been in business for over 53 years. It has weathered several recessions and, despite the ups and downs of the markets, managed to pull through, delivering a 14% annualized return over the past 25 years.
Its diverse tenant base includes large Fortune 500 companies in more than 72 industries. The diversification of its portfolio assets, its locations and the industries served by its tenant give it the upper hand in times of volatility. Currently, its dividend yield is just under 4%, which is below its historical average, but still twice as high as the S&P500.
Mid-America Apartment Communities Adds Value to FFO’s Growth
Kristi Waterworth (Mid-America Apartment Communities, Inc): Dividends make the world go round, at least for some investors. These paying stocks can be a great way to round out a portfolio, or they can be the meat and potatoes of your holdings. And right now, many dividend-paying REITs are up for sale on a massive scale. Mid-America Apartment Communities is a super-reliable residential REIT that always gets a discount in the market downturn.
Throughout 2022, Mid-America Apartment Communities continued to generate increased revenue from its apartments. It’s not just about raising rents, and that’s what really grabs my attention. Instead of just raising rents to keep up with the market and do nothing else, Mid-America Apartment Communities is continually reinvesting in its units. In the second quarter of 2022 alone, it completed the redevelopment of 1,844 apartments, which generated rental rate increases of 11% compared to non-renovated units.
So far, 2,942 units have been renovated this year, at an average cost of $5,364 per unit, resulting in an increase of $142 per month, per unit, in the average rent. Mid-America Apartment Communities expects these renovations to generate returns of an average of 8% overall. It plans to complete at least 10,000 more units this year, which should make for a truly green 2023, in the most financial sense.
A savvy investor would wonder if all these expenses are weighing on this company’s ability to pivot as needed. But as of June 30, 2022, its current ratio of debt to adjusted assets was only 29.4%. This is a reasonable, and perhaps even low, debt ratio given the widespread investments that Mid-America Apartment Communities is making across the United States, including new apartment developments in Orlando and Denver, and a community acquisition in Tampa.
For the three-month period ending June 30, 2022, it recorded an increase of just over 20% in funds from basic operations (FFO) compared to the prior year period, and an increase close to 10% of the funds available for distribution. This increased base FFOs from $199.7 million to $239.9 million and funds available for distribution from $132.2 million to $145.2 million.
A senior housing REIT that hasn’t missed a beat during the pandemic
Mike Price (Well Tower): Welltower was in one of the toughest real estate businesses when the pandemic hit. It is a healthcare REIT specializing in retirement homes. The elderly population has been hardest hit by the virus, and Welltower occupancy rates have been hit hard in turn. It still hasn’t missed a single dividend payment and, in fact, hasn’t missed one in 205 consecutive quarters.
Today, the dividend yield is around 3%, and it will probably increase soon. Funds from operations (FFO) increased 8.9% last quarter, driven by comparable store sales growth of 11.5%. The pandemic is not over, but vaccines and improvements in treatments have made it unlikely that the pandemic will materially affect Welltower’s business in the future as it did in 2020.
This means we can focus on the long-term secular trends that drive Welltower’s business. In five years, from 2015 to 2019, its turnover increased by 33%. The pandemic has significantly reduced that growth, but past 12-month earnings are already back above where they were in 2019. The trend of baby boomers retiring and eventually needing long-term care will only accelerate growth and pricing power. in existing Welltower facilities.
According to a recent investor report, the population of seniors in need of housing is growing, the wealth they have to pay for housing is growing, and property inventory is shrinking. All of this points to likely future revenue growth, which will end up in the income statement in dividends and in your pockets as an investor.
The question we should be asking about all REITs as interest rates rise is: what is the debt situation? The REIT has total debt of $14.8 billion, with approximately $2.6 billion due by the end of 2025. Much of this debt is at a fixed rate, and the REIT uses interest rate swaps interest when necessary to fix the rate of the floating rate debt. No debt has a current rate higher than 6.50%.