If there's one thing investors should know about EastGroup Properties (EGP -1.72%), it's that the real estate investment trust (REIT) isn't stingy. The industrial-focused REIT recently increased its dividend by an impressive 22.2%. That's the second raise it has given investors this year and adds to its tally over the past few decades.
Here's a closer look at EastGroup's dividend, what's driving this year's big boost, and what investors should expect from the REIT in the future.
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The achievements keep coming
EastGroup Properties is increasing its quarterly dividend payment from $0.90 per share to $1.10 per share, or 22.2%. That new rate pushes the company's dividend yield up to 2.1%, comfortably above the S&P 500's 1.3% average.
That is EastGroup's second big raise this year. In August, the company boosted its quarterly payment from $0.79 per share to $0.90 per share, or a 13.9% bump. Add it up, and the REIT gave investors a nearly 40% raise in 2021.
It's also worth noting that this year was a milestone for the company, as it was the 10th straight year it increased the dividend, qualifying it for the Dividend Achievers list. Overall, EastGroup has a solid dividend track record, increasing its payout in 26 of the last 29 years.
What's driving this dividend growth?
Two catalysts contributed to the company's outsized dividend growth in 2021. First, EastGroup has experienced significant earnings growth due to the strength of the industrial real estate market. The company's funds from operations (FFO) jumped 14% per share during the third quarter. The REIT benefited from strong occupancy levels, rising rental growth rates, and the continued expansion of its portfolios. Rental rates on new and renewal leases soared 37.4% due to skyrocketing demand and limited vacancy in its markets.
The other factor driving this year's surging dividend was that it exhausted a prior tax accounting benefit change. As a REIT, EastGroup must pay 90% of its taxable net income in dividends to comply with IRS guidelines. Several factors can reduce its taxable income, and thus the amount of dividends it must declare, including changing accounting methods. With this benefit drying up, EastGroup needed to boost its dividend to remain compliant.
What's ahead for EastGroup's dividend?
EastGroup noted that its surging earnings and the exhaustion of its previous tax accounting benefit change drove significant dividend growth in 2021. This means it doesn't expect to give investors quite as big a raise in 2022. CEO Marshall Loeb stated that the company "anticipate(s) that the rate of our dividend increase will normalize in 2022."
Still, the company could deliver a healthy dividend increase in 2021, given the strength of the industrial market and its growing portfolio. EastGroup ended the third quarter with 98.8% of its portfolio leased, its fourth consecutive quarter of record occupancy. Because it has limited available space, rental rates will likely continue rising sharply. That should drive strong organic earnings growth by capturing higher market-based rents as existing leases expire.
Meanwhile, the company expected to start $340 million of development projects in 2021. Combined with its value-add projects, these investments should drive incremental FFO growth in the coming quarters as it completes those projects.
In addition, it acquired several properties in recent months and has more deals in the pipeline. These expansion-related investments set the company up to continue delivering strong FFO per share growth in 2022 and beyond. All this means EastGroup Properties could give investors another sizable raise in 2022, potentially in the double digits.
A solid income growth stock
EastGroup Properties has become a top-notch dividend stock. This year, it gave investors two sizable raises, pushing its dividend growth streak to a decade long. While it won't provide quite as big an income boost in 2022, it should still provide investors with a decent raise, given its growth prospects. Because of that, dividend investors should put this REIT on their radar.
