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Shares have continued to rally this 12 months. Whereas that is nice for portfolio values, discovering engaging new funding alternatives has change into tougher. That is very true for income-seeking traders since dividend yields fall as inventory costs rise.
Nonetheless, there are nonetheless some compelling earnings alternatives if you already know the place to look. For instance, the common real estate investment trust (REIT) at the moment yields over 4%, roughly triple the S&P 500‘s dividend yield.
REITs have been below strain in recent times as a consequence of larger rates of interest, placing downward strain on actual property values. That headwind ought to fade within the coming years because the Federal Reserve begins slicing charges, which makes the sector seem like a clever alternative proper now. Whereas a number of REITs look engaging, Agree Realty (NYSE: ADC), Mid-America House Communities (NYSE: MAA), and Vici Properties (NYSE: VICI) are amongst people who stand out for his or her earnings and upside potential.
A large progress alternative
Agree Realty pays a month-to-month dividend that yields round 5%, partly as a result of greater than 25% slide in its inventory worth from its peak earlier than rates of interest began rising. The retail REIT has grown its payout at a 5.6% compound annual price over the past 10 years, and that regular rise ought to proceed.
The REIT focuses on proudly owning freestanding properties web leased or floor leased to high-quality retail tenants. These leases provide it with very steady rental earnings. It pays out lower than 75% of its regular earnings in dividends. That gives a pleasant cushion whereas permitting it to retain money to fund new income-generating retail property investments.
Agree Realty expects to speculate about $600 million in new properties this 12 months. It ought to have loads of alternatives, because it companions with rising nationwide and super-regional retailers that personal most of their areas. Its present tenants personal over 165,000 areas that the REIT may purchase in future sale-leaseback transactions.
With lower than 2,200 properties in its portfolio, Agree Realty has an extended progress runway forward. Add in its dividend and upside as rates of interest fall and actual property values rise, and the REIT may generate robust whole returns within the coming years.
Headwinds will quickly change into tailwinds
Mid-America House Communities, or MAA, at the moment yields greater than 4%. That top yield is partly as a result of practically 40% hunch in its inventory worth over the previous few years. Increased charges and elevated condo provide from a number of new growth initiatives throughout the Solar Belt area have weighed on the residential REIT’s worth.
Nonetheless, these headwinds ought to fade over the approaching years. The corporate expects to see a decline in new condo completions in its markets later this 12 months and into 2025. That ought to drive a fast rebound in rental progress charges.
In the meantime, as different condo builders are pulling again as a consequence of larger charges, MAA is ramping up its actions. The REIT has 5 communities below growth, which it expects to finish over the subsequent 12 months and a half. It is also planning to begin 4 to 6 extra developments over the subsequent two years.
These progress drivers ought to allow the REIT to proceed rising its dividend. It has raised its payout for 14 straight years, together with by 5% in late 2023.
Its speedy progress ought to proceed
Vici Properties’ dividend yield is approaching 6%. A giant driver of its larger yield is the roughly 20% decline in its share worth from its latest peak as a consequence of larger rates of interest.
Whereas larger charges have weighed on its share worth, they have not impacted its capacity to develop. Vici Properties’ income rose 8.4% within the first quarter, whereas its adjusted funds from operations (FFO) elevated by 10.3% (6.1% on a per-share foundation).
The REIT, which focuses on experiential actual property, has continued to seek out compelling funding alternatives. For instance, it lately agreed to fund as much as $700 million in enhancements to The Venetian Resort Las Vegas. It additionally agreed to finance a brand new Margaritaville Resort growth in Kansas Metropolis. It has a powerful stability sheet to proceed securing new funding alternatives, that are plentiful as a consequence of its strategic partnerships with operators of rising experiential companies.
Vici Properties’ rising earnings ought to allow the REIT to proceed rising its dividend. Since 2018, it has delivered a 7.9% compound annual dividend progress price, nicely above its peer group common of two.2% throughout that interval.
Rising earnings stream and upside potential
Decrease rates of interest have put lots of strain on REIT share costs in recent times. Nonetheless, they have not slowed Agree Realty, MAA, or Vici Properties down an excessive amount of. Due to that, they seem like sensible dividend shares to purchase, contemplating that charges ought to flip from a headwind to a tailwind within the coming months. That catalyst ought to mix with their engaging and rising dividends to allow these REITs to ship robust whole returns.
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Matt DiLallo has positions in Mid-America House Communities and Vici Properties. The Motley Idiot has positions in and recommends Mid-America House Communities and Vici Properties. The Motley Idiot has a disclosure policy.
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