One of the main attractions of most real estate investment trusts (REITs) is they pay above-average dividends. For example, as of August 2020 the FTSE Nareit All REITs index’s dividend yield is about 4%, more than double the S&P 500’s dividend yield of around 1.6%. Because of that, it’s usually relatively easy to find a REIT offering an above-average yield.
Three REITs that currently stand out for their attractive payouts compared to the S&P 500 are Agree Realty (NYSE: ADC), Camden Property Trust (NYSE: CPT), and Kimco Realty (NYSE: KIM). While they pay less than the REIT sector average, their more than 3% yields are still quite enticing.
A rock-solid retail dividend
Agree Realty is a retail REIT focused on owning freestanding properties secured by triple net leases. Unlike most retail REITs, the majority of its tenants have been paying their rent this year. This REIT collected 99% of what it billed during September and 97% overall during the third quarter. That’s an improvement from its 91% collection rate during the second quarter. Further, its collection rate has trended above the peer group average, primarily due to its focus on owning properties leased to investment-grade-rated tenants.
Because of that strong rental collection rate, Agree Realty has been able to maintain its 3.7%-yielding dividend. The REIT even increased its payout by 5.3% year over year earlier this year, driven by that strong collection rate, its high-quality balance sheet, and recent acquisitions.
That upward trend seems likely to continue because Agree expects to acquire $900 million to $1 billion of new properties this year — above last year’s roughly $700 million total — as it takes advantage of turmoil in the retail real estate sector. With a cash-rich balance sheet and one of the lowest leverage ratios in the REIT sector, Agree Realty has ample financial flexibility to deliver this needle-moving growth.
A top-notch landlord
Camden Property Trust is a residential REIT that owns multifamily properties across 14 major U.S. markets. The company’s portfolio includes Class A (33%) and Class B (67%) properties in both urban (39%) and suburban (61%) markets. That diversification across property type, market, and geography has enabled its portfolio to hold up relatively well. It has less exposure to high-priced big cities, which have experienced significant declines in occupancy levels and rental rates this year as tenants flee to lower-cost areas with more open space.
Meanwhile, Camden Property compliments its solid multifamily portfolio with one of the strongest balance sheets in the REIT sector. Because of that, its 3.4%-yielding dividend is one of the safest in the industry. The company’s financial strength gives it the flexibility to continue making investments to grow shareholder value. It currently has more than $812 million of apartment homes under construction that should increase its cash flow in the coming years.
Coming back after a brief break
Retail REIT Kimco Realty suspended its dividend earlier this year after its rental receipts plunged as governments imposed restrictions on nonessential businesses. Kimco only collected 70% of the rent it billed during the second quarter. However, the rate has improved since then, rising to 82% in July and 85% in August.
Because of that, Kimco brought back a dividend. While the $0.10 per share quarterly payout is well below the $0.28 per share it was distributing each quarter, it still implies an attractive yield at 3.4% due to the more than 42% plunge in its stock price this year.
That recently reinstated dividend is likely only the beginning for Kimco. The REIT noted that it would establish a more normalized, well-covered dividend level next year based on its expected cash flow. That payout will likely be above its reset level for this year, assuming its rental collection rate continues improving. Further backing that view is the company’s strong balance sheet, which has helped it weather this year’s turbulent market conditions better than many of its peers.
Attractive REIT dividends
This year has been a tough one for REIT investors as many companies in the sector slashed or suspended their payouts, including Kimco. However, with conditions improving, the REIT is bringing back an attractive dividend. Because of that, it’s joining the likes of Agree Realty and Camden Property Trust in offering an enticing buy-worthy payout that should endure future market challenges.