With the stock market more volatile than ever, the need for stable dividend-paying stocks is growing exponentially.
The benchmark CBOE Volatility Index is up more than 72% year-to-date as investors remain concerned regarding an impending global recession. Though the S&P 500 gained 4.7% over the past week thanks to a brief relief rally, the index is down more than 20% so far this year.
Many analysts and industry leaders expect equities to plummet further as the macroeconomic headwinds pile on. Tobias Adrian, director of monetary and capital markets at the International Monetary Fund (IMF), recently stated that another 20% decline in the S&P 500 is “certainly possible.”
Nevertheless, the U.S. real estate market seems relatively resilient despite rising mortgage rates because of tight supply.
Lawrence Yun, chief economist at the National Association of Realtors said, “Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory.” This is in contrast to the global economic slowdown of 2008 when inventory levels significantly surpassed market demand. Thus, real estate investments seem to be the prudent option right now.
While investing in properties might be unfeasible given the skyrocketing mortgage rates, investing in real estate investment trusts (REITs) can be rewarding. This comes as REITs are required to distribute at least 90% of their taxable earnings as dividends to shareholders.
Some of the most promising REITs are:
Mid-America Apartment Communities Inc. MAA
With ownership interest in more than 100,000 apartment homes, Mid-America is one of the fastest-growing REITs in the U.S. and is a constituent of the S&P 500 index. The company has paid quarterly dividends consecutively for the past 28 years. It currently pays $5 as dividends annually, yielding 3.34% on the current price. The company’s dividend payouts have increased at a compound annual growth rate (CAGR) of 6.78% over the past three years.
Mid-America’s operations are predominantly focused in the Sun Belt, which has witnessed strong job growth and migration trends. The demand for apartment housing has been rising significantly, allowing Mid-America to raise its core funds from operations (FFO) outlook for fiscal 2022.
Mid-America’s adjusted funds from operations (AFFO) is expected to increase by 12.71% over the next year. Consequently, analysts expect its dividend per share to rise by 7.42%. Also, Barclays analyst Anthony Powell expects Mid-America’s stock price to rise to $215, indicating a 43% potential upside from the last closing price.
STAG Industrial Inc. STAG
STAG is a pure-play industrial REIT that owns and operates single-tenant industrial properties across the U.S. It owns and operates approximately 111.5 million square feet of rentable land as of June 30, 2022.
Despite the economic slowdown concerns, U.S. manufacturing activity is robust. Industrial production increased at a 2.9% annualized rate in the fiscal third quarter. While increasing interest rates remain a cause for concern, the strong demand and favorable government policies, including the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act and landmark infrastructure bill should allow industrial REITs such as STAG to grow substantially.
STAG Industrial currently pays $1.46 as dividends annually, yielding 5.15% on the current price. Its four-year average dividend yield is 4.53%. Also, the REIT’s dividends payouts have risen at a CAGR of 3.24% over the past 10 years.
Analysts expect the company’s AFFO to rise by 8.34% over the next year, which should translate to a significant increase in dividends. In addition, eight Wall Street analysts have an average price target of $38.06 for STAG, indicating a potential upside of 34.2%.
Four Corners Property Trust Inc. FCPT
Four Corners is the only publicly-traded REIT that specializes in restaurant properties in the U.S. It currently owns and leases more than 960 properties across 47 states, making it one of the most diversified restaurant REITs in the country.
Four Corners pays $1.33 as dividends annually, yielding 5.61% on its last closing price. Its average dividend yield over the last four years stands at 4.53%. Over the past five years, the REIT’s dividend payouts have risen at a CAGR of 6.52%.
While restaurant sales took a hit over the last two years because of COVID-19-induced restrictions, colossal pent-up demand has allowed the sector to make a stellar comeback. Despite the 40-year-high inflation rates, consumer spending still remains strong, according to Brian Moynihan, CEO of Bank of America Corp.
The California-based REIT has been capitalizing on this trend, acquiring more than $10 million worth of restaurant properties over the last few months. In the second quarter of 2022, Four Corners’ rental revenues increased by 13.6% year-over-year.
Analysts expect the stock’s dividends to rise by 4.64% next year because of an estimated 5.6% rise in AFFO. The stock has a consensus price target of $29, reflecting a 22.32% potential upside.
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