​5 REITs That Should Boost Dividends

Brad Thomas  |


Some notes, as we’ve just gotten through another earnings report season:

1. It’s possible to get rich when you own REITs that have growing dividends.

2. Already proven: dividend growth (or lack thereof), and price appreciation - are correlated.

3. The best opportunities can be found with companies with the highest dividend growth prospects PLUS the widest margin of safety.

4. Knowing what to avoid, is just as important as knowing what to buy: avoid being a market timer, avoid trying to get rich buying shares in high-flying, air-gasping, super-high-dividend, beaten-down REITs (examples  (CBL),  (WPG)).

5. Stocks with dividend increases… indicate a success of the company and its underlying business thesis.

6. An “Intelligent REIT Investor” (yes, it’s also my book title, co-written with Stephanie Krewson-Kelly; recommended)… an intelligent investor can gather a diversified portfolio of REITs that encompass a variety of property sectors and subsectors, just by looking for dividend growth.

7. Companies would not raise the dividend if the business was not experiencing growth in revenues, profit, and FFO (funds from operations).

8. Over the long run (1972-2015), dividend growers have outperformed the three other categories (no-growth dividend payers, non-dividend-paying stocks, and dividend cutters) while demonstrating less volatility. This combination of higher return and lower volatility would lead to a much better risk-adjusted return (as measured by the Sharpe ratio) Source: investorplace.com.

9. Due diligence is a must for any serious investor.

10. "The prime purpose of a business corporation is to pay dividends regularly and, presumably, to increase the rate as time goes on." - Benjamin Graham in Security Analysis

11. Having set the scene with requisite and important principles & practices, here are 5 REITs that should boost their dividends…

Crown Castle(CCI)): I believe smartphones will continue as primary catalyst for growth. Investment grade balance sheet has access to deep, stable, low cost of capital. Goal to increase dividend per share by 7% to 8% per year while positioning company for large potential upside created by 5G, while performance at 1.2% year-to-date and shares have underperformed. BUY

CyrusOne(CONE)): A STRONG BUY based on projected growth in years ahead: could generate over 15% annually over next 2 to 3 years, with sound dividend growth model. S&P issuer credit rating upgraded to BB+. Q3: FFO $78.5 million (or $0.79 per share), a 10% increase over same period 2017; closed acquisition of Zenium in London and Frankfurt, two largest data center markets in Europe; acquired 15 acres in Santa Clara, California, entering a key West Coast market with onsite power cogeneration facility. Fundamentals: lowest payout ratio in REIT sector (so could have a higher yield if it wanted).

STORE Capital(STOR)): In Q3 earnings call, CEO Volk explained company raised dividend 6.5% in Q3 while payout ratio reached approximately 70% of adjusted FFO, saying it provides shareholders a highly protected dividend in a company well-positioned for long-term internal growth based upon anticipated tenant rent increases and reinvestment of surplus cash flows. Balance sheet well-positioned the company continues to scale, investing close to $1.2 billion in acquisitions year-to-date. Diverse portfolio with mix of retail, service sector, manufacturing properties to produce real economic gains. BUY

Equinix, Inc.(EQIX)): In Q3-18 earnings call, company plans to expand its market, partner with high-priority companies, and focus on driving increased operating leverage to create sustainable long-term value. Just acquired Verizon, Infomart and Australia’s Metronode as interconnection revenues surpassed colocation, growing 13% YOY. AFFO reached $402 million at $5.01 per share, higher than expected. Expects cash dividends to reach $2.28 per share in fourth quarter 2018 along (total about $727 million). STRONG BUY

Iron Mountain (IRM): STRONG BUY based on fundamental analysis and deeply discounted share price with a P/FFO of 15.9.x. Solid growth forecast: 7% 2019, 11% 2020. Their records management business continues to deliver steady organic revenue growth and strong margin expansion while achieving meaningful scale and faster-growing adjacent businesses. A standout as high-yielding investment which continues to grow AFFO and EBITDA in mid to upper single digits, fueling continued dividend growth. Integration still a risk following acquisition of five entities within nine months, and investors dealing with “less paper” hype, company is achieving meaningful scale with faster growing adjacent businesses, data centers. Expects to grow data center business to 7% as company’s development pipeline fills out.

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DISCLOSURE: Disclosure: I am long CCI, CONE, STOR, EQIX, IRM


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
EQIX Equinix Inc. 391.12 4.04 1.04 287,731 Trade
CONE CyrusOne Inc 59.01 1.31 2.27 619,185 Trade
CBL CBL & Associates Properties Inc. 2.57 0.01 0.20 1,171,558 Trade
WPG Washington Prime Group Inc. 6.20 0.15 2.40 1,406,026 Trade
STOR STORE Capital Corporation 30.89 0.33 1.08 1,237,401 Trade
IRM Iron Mountain Incorporated (Delaware)Common Stock REIT 34.66 0.68 2.00 797,711 Trade
CCI Crown Castle International Corp. (REIT) 116.89 0.79 0.68 1,055,993 Trade

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