Lock In High Dividend Yields While Prices Are Down On These 3 REITs

If history is any indication, one of the best ways to make long-term money in the stock market is by having the courage to buy stocks when they are largely out of favor. This is especially true of dividend stocks because when the prices decline, investors can lock in higher dividend yields for life.

Certainly, investors should do their homework to ascertain the safety and reliability of a company’s dividends before buying on the basis of yield alone. Here are three real estate investment trusts (REITs) whose recent price declines have substantially increased their dividend yields.

Alexander’s Inc. ALX is a Paramus, N.J.-based retail REIT that leases, manages and develops commercial properties in the New York City metropolitan area. The company is managed by Vornado Realty Trust.

Over the past month, Alexander’s has dropped from $260 to a current price of $233, pushing up the annual dividend yield to a quite lofty 7.7%. This price decline began two weeks after the REIT reported second-quarter earnings, a report in which funds from operations (FFO) surprised to the upside. So it would seem the price drop cannot be blamed on failing metrics. The more likely culprit was Federal Reserve Chairman Jerome Powell’s speech regarding future interest rate hikes. When interest rates rise, REIT stock prices often decline.

The dividend payout ratio for Alexander’s is 79%, which is about the maximum that income investors find comfortable. The dividend has been constant at $4.50 per quarter since 2018, but the five-year average yield is only 5.92%. Therefore, Alexander’s is currently paying a larger dividend yield than the norm and could be a bargain at this level.

City Office REIT Inc. CIO is an office REIT based in Dallas. Most of its portfolio is located within the Sun Belt and the Pacific Northwest.

Second-quarter revenue of $45.5 million and FFO of 40 cents per share were surprises to the upside, but earnings per share (EPS) were substantially lower than the year-ago numbers. Also, a big chunk of the revenue was from profits on the sale of an office building in Dallas.

Although COVID-19 resulted in the quarterly dividend being cut from $0.235 to $0.15 in April 2020, it was then hiked to $0.20 at the beginning of 2022.

City Office’s price peaked in January at just below $21. Over the nine months since, the share price has been slashed to $11.27. However, the current annual dividend of 7% is easily supported by a very low payout ratio of 50%. Investors looking for a beaten-down REIT with a safe-looking high-yield dividend may want to take a closer look at this stock.

Armada Hoffler Properties Inc. AHH is a vertically integrated, diversified owner and manager of office, retail and multifamily properties throughout the Mid-Atlantic and Southeastern U.S. The Virginia Beach, Virginia-based company was founded in 1979 by Executive Chairman Daniel Hoffler.

Armada stock is up a whopping 92% in total since its 2020 COVID-19 lows, but like many in the REIT industry, it has dropped about 15% in the past three weeks. The metrics are mostly positive on this company, and since almost all of the entire REIT sector has sold off lately, it would appear that the price drop is likely just the proverbial “throwing the baby out with the bath water.”

For example, Armada has beaten the street’s estimates for the last four consecutive quarters. Second-quarter FFO of 30 cents per share was a penny higher than a year ago. Revenue of $55.22 million was up from $47.38 million in the same quarter of 2021.

Given that this stock is probably down from no fault of its own, investors may want to grab it with its current 6% annual dividend yield while they can.

Looking for high dividend yields without the price volatility?

Real estate is one of the most reliable sources of recurring passive income, but publicly-traded REITs are just one option for gaining access to this income-producing asset class. Check out Benzinga's coverage on private market real estate and find more ways to add cash flow to your portfolio without having to time the market or fall victim to wild price swings. 

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