Investing

Rate Hikes Are Almost Over--Buy These Beaten Down Monthly Pay REITs With Huge Dividends Now

Lee Jackson

Published: July 14, 2023 6:45 am

It’s been 16 long months of interest rate hikes, but with both the consumer price index and the producer price index numbers coming in better than expected this week, it’s becoming clear that while painful, the Federal Reserves rate hike campaign is working. The good news for investors is that while it’s likely they raise 25 basis points yet again at the meeting in late July, that could be the end of this rate hike cycle. With that noted, they could hold rates at 5.25%-5.50% or even higher well into next year.

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One great idea now, especially with the Federal Reserve closing in on the end of the rate hikes, is real estate investment trusts or REITs, a very practical way to own commercial and residential real estate, and many pay among the best dividends of any asset class. However, most only pay quarterly, or four times a year, so there is a wait of at least 90 days between dividends.

Since most Americans receive bills that need to be paid monthly, we decided to screen our 24/7 REIT research universe for Buy rated companies that pay monthly dividends, and we found seven that make sense for income investors looking for dependable distributions and a degree of safety.

For contrarian investors, REITs are still trading at some of the biggest discounts in years after the long string of interest rate hikes, and while selection is very important, as the current bank issues could crimp lending due to concerns with commercial real estate, the top companies will survive and offer huge total return potential. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Agree Realty

This top REIT has had a nice run off the lows printed earlier this year and still has potential upside. Agree Realty Corporation (NYSE: ADC) focuses on the ownership, development, acquisition, and management of retail properties net leased to national tenants. It specializes in acquiring and developing net leased retail properties for retail tenants.

Agree Realty specializes in the acquisition and development of properties net leased to industry-leading, omni-channel retail tenants. As of December 31, 2022, the Company owned and operated a portfolio of 1,839 properties, located in all 48 continental states and containing approximately 38.1 million square feet of gross leasable area.

Investors are paid a 4.45% distribution. Raymond James has a Strong Buy rating to go with an $81 target price objective. The Wall Street consensus target is set at $76. The stock closed Thursday at $65.56.

EPR Properties

This REIT invests in some of the most popular entertainment companies. EPR Properties (NYSE: EPR) is a leading experiential net lease real estate investment trust (REIT), specializing in select enduring experiential properties in the real estate industry. The company is focused on real estate venues that create value by facilitating out-of-home leisure and recreation experiences where consumers choose to spend their discretionary time and money.

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The company has nearly $6.7 billion in total investments across 44 states. They adhere to rigorous underwriting and investing criteria centered on key industry, property, and tenant-level cash flow standards. Senior management believes that their focused approach provides a competitive advantage and the potential for stable and attractive returns.

Shareholders are paid a big 7.08% distribution. Raymond James has a Strong Buy rating on the company with a $45 target price. The consensus target is posted higher at $49.28. The shares closed trading Thursday at $45.98.

Gladstone Commercial

This company was hit hard as interest rates charged higher, and is offering the best entry point in over a year. Gladstone Commercial Corporation (NASDAQ: GOOD) is focused on acquiring, owning, and operating net leased industrial and office properties across the United States.

As of June 30, 2021, Gladstone owns a diversified portfolio of 121 office and industrial properties located in 27 states and leased to 106 tenants. The company has grown its portfolio in a consistent, disciplined manner at a rate of 18% per year since the IPO in 2003. They match long-term leased properties with long-term debt to lock in the spread to create a durable, stable cash flow stream to fund monthly distributions to shareholders. Current occupancy stands at 96.5%, and occupancy has never dipped below 95.0% since the company’s IPO in 2003.

Most importantly for investors, Gladstone has a track record of success, as exhibited by a history of strong distribution yields, consistent occupancy greater than 95.0%, and 10+ years of paying continuous monthly cash distributions. Gladstone Commercial has never skipped, reduced, or deferred a distribution since its inception in 2003.

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Investors are paid a massive 9.08% distribution. B. Riley Securities has a Buy rating and a $15 price target. The Wall Street consensus target for the stock is set lower at $13.83. The last trade for Thursday was reported at $13.13.

LTC Properties

This REIT is focused on a sector that is growing fast as the population of the U.S. ages. LTC Properties, Inc. (NYSE: LTC) invests in seniors’ housing and health care properties primarily through sale-leasebacks, mortgage financing, joint ventures, and structured finance solutions including preferred equity and mezzanine lending.

LTC holds 21 properties in 29 states with 31 operating partners. The portfolio comprises approximately 50% seniors housing and 50% skilled nursing properties.

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Investors are paid an outstanding 6.93% distribution. Royal Bank of Canada has an Outperform rating on the stock, and the firm’s target price is $32. The consensus target is set higher at $34.20. The final trade for Thursday was reported at $34.20.

Realty Income

This is an ideal stock for growth and income investors looking for a safer inflation-busting idea for 2023. Realty Income Corporation (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.

The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.

To date, the company has declared 608 consecutive common stock monthly dividends throughout its 52-year operating history and increased the dividend 109 times since Realty Income’s public listing in 1994 and is a top real estate member of the S&P 500 Dividend Aristocrats index.

Investors are paid a very solid 5.07% distribution monthly. The Stifel analysts have a Buy rating on the stock, and their price target is posted at $71.25, which compares with the lower $69.48 consensus and a $60.95 close on Thursday.

SL Green Realty

This is a leading large-cap office REIT that top analysts on Wall Street prefer now and is a solid (and somewhat) contrarian play. SL Green Realty Group (NYSE: SLG), Manhattan’s largest office landlord, is a fully integrated real estate investment trust, that is focused primarily on acquiring, managing, and maximizing the value of Manhattan commercial properties.

As of December 31, 2020, SL Green held interests in 88 buildings totaling 38.2 million square feet. This included ownership interests in 28.6 million square feet of Manhattan buildings and 8.7 million square feet securing debt and preferred equity investments.

Shareholders are paid a big 10% distribution. BTIG Research has a Buy rating to go with a massive $70 target price. The consensus is posted at $30.43. The stock closed Thursday’s session at $32.31.

STAG Industrial

This is a strong industrial real estate investment trust play that offers solid upside potential. STAG Industrial Inc. (NYSE: STAG) is a self-managed full-service real estate company focused on the acquisition, ownership, and management of single-tenant, Class B warehouses in secondary markets across the U.S. The company continues to focus on expanding its acquisition platform to find acquisitions to grow its portfolio.

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The company is primarily focused on acquiring and operating single-tenant industrial properties in secondary markets across the United States. Top Wall Street analysts expect management to be aggressive acquirers over time. Additionally, the in-place portfolio should deliver stable organic growth supported by healthy property-level fundamentals.

Investors receive a solid 4% distribution. Raymond James has an Outperform rating on the shares to go with a $36 price objective. The consensus target across Wall Street is set just higher at $37.33 The final trade for Thursday was reported at $37.79.

All of these top companies are way off the highs printed this time last year, and all seven have paid dependable dividends for years. While there are also mortgage REITs that pay monthly dividends, they are more vulnerable to a shake-out in a volatile environment, and we wanted to focus on the companies that had hard assets. It is important to remember that REIT distributions may contain return-of-principal in their monthly distribution payments.–