Passive Income Watch: Wall Street Sees Upside With This 5.4% Dividend Stock

There’s no shortage of dividend stocks to choose from. But every once in a while, you come across one that captures Wall Street’s attention. JBG Smith Properties (NYSE: JBGS) is one such opportunity, a REIT that invests in high-growth mixed-use properties in the high-demand Washington, D.C. area.

JBG Smith is the chosen developer for e-commerce giant Amazon’s (Nasdaq: AMZN | AMZN Price Prediction) second headquarters in downtown Virginia, the first phase of which, Met Park, was opened last year. JBG is responsible for transforming the National Landing neighborhood from what was once all offices to a mixed-use community ripe with opportunities for development.

But it’s not all smooth sailing. The REIT experienced a setback when its planned development of Potomac Yard in a project anchored by the Washington Capitals and Washington Wizards was terminated, resulting in what the firm described as a “missed opportunity.” But its involvement with National Landing increases its chances of securing future opportunities within this community in the future. JBG SMITH was also the recipient of the Washington Business Journal’s Developer of the Year award for 2023.

With a dividend yield of roughly 5.4%, JBGS is a consistent dividend payer that provides steady passive income to investors.

Ups and Downs

As its first quarter results show, JBG Smith has not been left unscathed from the challenging market conditions, including tight lending markets. But for a long-term dividend play, JBG Smith is a REIT that prioritizes shareholder value, which goes a long way.

At year-end 2023, JBG Smith’s board of directors lowered the annual dividend rate to $0.70, or $0.175 per quarter. Previously, the REIT was paying a quarterly dividend of $0.225 for an annual rate of $0.90. The REIT recently shifted its focus to share buybacks for the time being, which it says are “more accretive” to its long-term NAV per share vs. dividends.

One way you know Wall Street is a fan of this dividend stock is in the way they respond to challenges. JBG Smith reported its Q1 results this week and the results were mixed in a difficult economy. In response, BMO Capital analyst John Kim maintained his “hold” rating on the stock with an $18 price target, representing 22.3% upside and demonstrating Wall Street’s belief in this REIT, a 15% year-to-date decline in the share price notwithstanding.

Inflation and Interest Rates

JBG continues to be affected by two major economic headwinds – elevated inflation and high interest rates. These challenges were reflected in its Q1 results, including a net income loss of $32.3 million, or (0.36) per diluted share compared with earnings of $21.2 million or $0.19 per diluted share in the year-ago period. Total revenue was $145.2 million vs. nearly $153 million year-over-year.

But JBG also demonstrated its resilience. While the capital markets are constrained, few deals are getting done. But JBG was able to successfully complete the sale of  two properties last quarter, including Central Place Tower and North End Retail, for a combined $176.8 million,  the proceeds of which were directed toward paying down debt and making future investments possible.

The firm’s multifamily portfolio is performing well, as evidenced by a 95.9% lease rate and 9.4% rental rate increase for renewals. JBG also has a pair of multifamily assets under construction and 18 assets in its development pipeline, which is impressive in the wake of the pandemic.

Patience Pays

JBG’s strategy involves funding share buybacks through what it describes as “asset recycling,” including asset dispositions and equity issuance. Year to date, JBG has repurchased 3 million shares at an average price of $16.50 per share. JBG has committed to a 9.3 million square foot development pipeline, which it expects to be entitled by year-end 2025. For now, it’s a waiting game as JBG awaits the normalization of the construction cost and interest rate environments. When that happens, management says they have an “attractive portfolio of shovel-ready growth opportunities” ahead.

JBG has an enterprise value of $4 billion as well as cash and cash equivalents of $220.5 million, not to mention access to a nearly $750 million credit facility. Given JBG’s track record of paying uninterrupted dividends since 2017, shareholders have reason to believe in JBG. The issues this REIT is facing are not company specific and are being felt by the broader commercial real estate industry. When market conditions improve, JBG is strategically positioned to benefit, and if history is any indication, so too will patient shareholders.