Investors considering buying Real Estate Investment Trusts, or REITs should look at more than just the dividend yield as the only reason for purchasing. Many REITs have high yields, but an extremely high yield can sometimes be a sign of deteriorating fundamentals. Income investors should consider dividend aristocrat REITs to ensure stability, and avoid dividend cuts whenever possible.
One way to do this is to focus on stocks with long histories of dividend growth. Even among REITs, a select few have raised their dividends for more than 25 consecutive years. The 3 REITs currently on the Dividend Aristocrats list are below:
- Essex Property Trust (ESS)
- Realty Income (O)
- Federal Realty Investment Trust (FRT)
This article will discuss these 3 Dividend Aristocrat REITs in greater detail.
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Essex Property Trust
Essex Property Trust is a residential REIT that owns multi-family apartment communities located in West Coast markets, primarily California and Washington. It has targeted eight specific coastal markets in California and Washington. These are cities with large populations and economic growth. Essex has ownership interests in nearly 250 apartment communities consisting of over 60,000 apartment homes. It is our first Dividend Aristocrat REIT.
Essex Property Trust reported strong second-quarter 2024 results, with an EPS of $1.45, surpassing estimates by $0.08, and revenue of $439.78 million, up 6.42% year-over-year, beating expectations by $7.23 million. Net income per diluted share for the quarter was $1.45, a slight decrease from $1.55 in the second quarter of 2023.
However, the company achieved a 4.5% increase in Core FFO per diluted share to $3.94, driven by favorable consolidated NOI growth. For the second quarter, Essex reported same-property revenue growth of 3.4% and NOI growth of 3.0% compared to the same period in 2023. Sequentially, same-property revenues and NOI improved by 1.2% and 2.5%, respectively. The company also achieved a year-over-year blended rate growth of 3.4% in Q2 2024, up from 2.2% in Q1 2024. Notably, Essex acquired two apartment communities in Northern California valued at $147.7 million.
Essex has increased its dividend for 30 consecutive years. Its strong balance sheet is a big reason for its dividend track record. The trust has a solid BBB+ credit rating, a very healthy interest coverage ratio, and a net debt-to-adjusted EBITDA ratio.
Real estate has a natural moat, and Essex’s exposure to high-value cities with strong technology cultures further widens that moat. However, apartments generally have a more elastic supply than single-family homes, which offsets some of that protection. Still, the company has shown the ability to continue raising its dividend through recessions.
Essex stock has a 3.1% dividend yield.
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Realty Income
Realty Income is perhaps the safest REIT when it comes to dividend sustainability. It has additional appeal for income investors as Realty Income is a monthly dividend stock that makes 12 dividend payments per year instead of the usual four. It is our second Dividend Aristocrat REIT.
Realty Income has declared more than 630 consecutive monthly dividends, an unprecedented track record among monthly dividend stocks. It has increased its dividend more than 110 times since its initial public offering in 1994. The company’s long history of dividend payments and increases is due to its high-quality business model and diversified property portfolio.
The trust employs a highly scalable business model, enabling it to grow into a massive landlord of more than 15,000 properties. Realty Income operates under the triple-net structure, meaning the tenant is responsible for the three primary sources of operating costs of taxes, maintenance, and insurance.
This is an advantageous structure for Realty Income, as it provides the company with a strong cash flow stream that can then be used to acquire additional properties. The snowball effect of the business model has provided Realty Income with consistent growth for decades.
On August 5, 2024, Realty Income announced its operating results for the three and six months ended June 30, 2024. For the second quarter, Realty Income reported net income available to common stockholders of $256.8 million, or $0.29 per share.
Adjusted Funds from Operations (AFFO) per share increased by 6.0% to $1.06 compared to the same quarter in 2023. The company invested $805.8 million during the quarter at an initial weighted average cash yield of 7.9% and achieved a rent recapture rate of 105.7% on properties re-leased. FFO for the second quarter was $929.1 million, or $1.07 per share, compared to $688.0 million, or $1.02 per share, in 2023.
Realty Income has paid over 600 consecutive monthly dividends to shareholders, a streak that goes back over 50 years. Realty Income has also increased its monthly dividend more than 100 separate times since the company had its initial public offering in 1994.
With credit ratings of A- from Standard & Poor’s and A3 from Moody’s, Realty Income has a healthy balance sheet to protect its Dividend Aristocrat REIT status. Shares currently yield 5.1%.
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Federal Realty Investment Trust
The final Dividend Aristocrat REIT is Federal Realty Investment Trust, which has the longest history of annual dividend increases of any REIT. In fact, FRT has increased its dividend for 57 years in a row. FRT is not just a Dividend Aristocrat, it is also a Dividend King.
Federal Realty concentrates on high-income, densely populated coastal markets in the Unoted States, allowing it to charge more per square foot than its competition.
Federal Realty Investment Trust (FRT) announced its financial results for the second quarter ended June 30, 2024, showcasing strong performance across various metrics. The company reported a net income available for common shareholders of $1.32 per diluted share, a significant increase from $0.72 per diluted share in the same period of 2023. Operating income for the quarter also rose to $157.0 million, up from $101.8 million in the prior year quarter.
Key highlights for the second quarter included a 5.1% increase in funds from operations (FFO) per diluted share to $1.69, compared to $1.67 in the second quarter of 2023.
The company’s portfolio occupancy stood at 93.1%, with a leased rate of 95.3% at quarter-end, representing increases of 110 and 100 basis points quarter-over-quarter, respectively. Small shop leasing was robust, with a leased rate of 92.5%, up 110 basis points quarter-over-quarter and 230 basis points year-over-year.
Federal Realty’s competitive advantages include its superior development pipeline, focus on high-income, high-density areas, and decades of experience running a world-class REIT. These qualities allow it to perform admirably and even grow through recessions when some of its lesser peers struggle.
FRT has a secure dividend payout with a 65% dividend payout ratio expected for 2024. FRT stock currently yields 3.8%.
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Disclosure: Members of the Sure Dividend Team are long some of the stocks mentioned.
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Bob Ciura
Bob Ciura is President of Content at Sure Dividend. Bob has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
Source: Essex, Realty Income, and Federal Realty: The Three Dividend Aristocrat REITs
