3 REITs Growing Dividends 62%+

There’s a “double shot” of upside waiting for us in real estate investment trusts (REITs) right now, and some of these companies—like the 3 we’ll discuss below—are so stuffed with cash they can’t hike payouts fast enough!

REITs are among our favorite dividend plays because:

• They’re “pass through” entities—REITs own property ranging from apartments to seniors’ homes and malls. They simply collect rent checks, take out enough to keep the buildings in good shape, then hand the rest to us.
• They pay zero corporate tax, so long as they pay out 90% of their net income as dividends. This tax “hall pass” means even more dividends (and faster dividend growth!) for us.

REITs Set to Roll as Fundamentals Take Center Stage

We’re getting a double shot of upside here because, first up, REITs have tumbled more than the market this year, with the benchmark Vanguard Real Estate ETF (VNQ)

VNQ
dropping 10%, compared to a 5% dip for the S&P 500.

That sets REITs up for bounce-back upside, given their steady, predictable business models. That upside will be accelerated by one other factor few folks are considering: a flight to safety by millions of folks gambling on low (or no!) profit tech plays trading on the NASDAQ and held by media favorite Cathie Wood’s ARK Innovation ETF (ARKK)

ARKK
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And REITs, with their steady rents, simple business models and high dividends, are sitting right in their path. But we can do better than what most folks do: buy a REIT ETF like VNQ and call it a day. We’ll grab faster-growing dividends—and faster price gains—from our REIT picks by “cherry picking” the ETF’s best holdings.

Below are three of VNQ’s top investments. All have soaring dividends and share prices primed to bounce as 2022 rolls on.

REIT Pick No. 1: A Savvy Smartphone Play That Hikes Its Payout Every Quarter

American Tower (AMT) is a name members of my Hidden Yields dividend-growth service know well: the cellphone-tower “landlord”—and No. 1 VNQ holding—has handed us a 62% total return in a little more than three years.

We love AMT because it raises its dividend every quarter, and it’s sent its payout 65.5% higher, in a straight line, since we bought it.

We often talk about a company’s “Dividend Magnet” in Hidden Yields—it’s the tendency of a rising dividend to pull share prices higher. You can see that with AMT, whose total return has matched its dividend hikes point for point. The company gets ultra-reliable rents from its 170,000 cellphone towers, whose “tenants” include AT&T (T) and Verizon (VZ).

AMT recently branched out into the data-center business with its acquisition of former Hidden Yields holding CoreSite (which itself handed us a 69% gain in a little less than three years, from March 2016 to February 2019). It’s a natural extension of AMT’s growing cell network, including 5G.

The REIT has lots of room to keep growing its dividend: its consolidated per-share funds from operations (FFO, the best measurement of REIT performance) climbed 10% in the latest quarter, as billings rose 15% on strong demand for its towers. That’s set to continue as mobile data use—including growing demand from the connection of other devices beyond computers and phones, or the so-called “internet of things”.

AMT’s dividend occupies 54% of its last 12 months of cash flow. That’s very conservative for a REIT like AMT. (Payouts up to 90% can be sustainable for REITs, due to their steady cash flows.)

REIT Pick No. 2: A Tech Stock in Disguise

Equinix (EQIX), with its 237 data centers across 27 countries, is an even shinier lure for our tech-obsessed buyers than AMT! The stock has been caught up in the pullback to the point that it’s trading where it was in April of last year.

But Equinix is anything but: its revenue has risen for 75 straight quarters, and it’s got insulation from rising rates, with 95% of its debt paid at fixed rates and bearing a weighted average maturity of 9.3 years.

Like AMT, Equinix is a serial dividend hiker. Over the past five years, the payout has jumped 44%, which has helped drive a stellar 81% rise in the share price.

Normally we don’t like to see share prices get too far ahead of the pace of dividend hikes, but we’re making an exception for Equinix, due to its soaring adjusted FFO (up 8% in the latest quarter; a big jump for a steady revenue generator like this). And its payout comes in at an ultra-conservative 42% of per-share FFO, so it has lots of room for further hikes, even if FFO were to flatline.

REIT Pick No. 3: An Apartment Owner in Tech’s Backyard

It’s tough to see the connection between apartment landlord Essex Property Trust (ESS) and tech, until you see that most of Essex’s buildings are in the San Francisco Bay area and are the modern, sleek setups most tech workers want to live in.

The stock yields 2.6% as I write this. That’s okay—twice the 1.3% the average S&P 500 stock pays. But the real magic happens when you factor in dividend growth: over the past decade, Essex’s payout has jumped 125%. Put another way, anyone who bought in 2011 is yielding 5.8% on their original purchase!

And, as with our previous two picks, Essex’s Dividend Magnet is going full bore!

Here again, we see the core fundamentals in place to drive that dividend higher: Essex expects rents to jump 7.7% in its markets this year, while job growth comes in at a healthy 4.1%, well above the 2.9% it forecasts for the US.

Moreover, the midpoint of its core FFO range for 2022 comes in at $13.70, up a healthy 10% from 2021. The dividend is plenty safe—and geared for more growth—at just 61% of that forecast.

Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.

Disclosure: none