Real estate investment trusts (REITs) can be incredible stocks for dividend investors. That's because in order for REITs to benefit from certain tax advantages like paying no corporate taxes, they are required to pay a minimum of 90% of taxable income in the form of dividends. Right now, the average dividend yield for all REITs as tracked by the National Association of Real Estate Investment Trusts (NAREIT) is more than double dividend yield of the S&P 500.
Certain REITs, in particular, can offer above-average returns, which over time can lead to notable dividend income as dividends grow. If you're looking to earn $500 from dividends, here's how STORE Capital (STOR), SL Green (SLG 9.93%), and Simon Property Group (SPG 3.15%) could help you do it.
STORE Capital is a retail REIT specializing in the ownership and leasing of single-tenant operational real estate (STORE). In total it has just under 3,000 stores across the U.S. with tenants specializing in 121 different industries, like restaurants, early childhood centers, fabrication, automotive repair and maintenance, and health clubs, among many others.
The pandemic was a challenging time for STORE Capital and its tenants, as mandates across the country forced many stores to temporarily close their doors. Thankfully, much of STORE's portfolio is considered an essential service, which allowed it to fare far better than recreational retail operators.
Today, STORE Capital's revenue has exceeded pre-pandemic levels thanks to acquisitions made from 2019 to 2021 boosting rental revenue. Its adjusted funds from operations (AFFO), an important metric for evaluating a REIT's profitability, is up 16% from pre-pandemic levels and 21% year over year. Its debt levels are just above average for REIT standards, being roughly 5.7 times its earnings before taxes, interest, depreciation, and amortization (EBITDA), and it's got plenty of cash available for future acquisitions.
The company has raised its dividend for seven consecutive years, even throughout the pandemic. Share prices have fallen 19% year to date despite STORE maintaining strong earnings, which has pushed its dividend return to a competitive 5.5% today. That means investors putting a $2,750 investment in STORE today could earn around $153 in dividend income per year without dividend raises.
SL Green is the leading office REIT in the greater Manhattan area, having ownership or interest in 72 office buildings across New York City. Both the office sector and New York City suffered greatly at the start of the pandemic in 2020 as people fled the city in record numbers. Up until 2022, strict mandates within the city prolonged the reopening of businesses and offices. But things are turning around, and many offices and residents are returning to the city and workplace.
Its net operating income is up significantly from this same time last year. Leasing momentum is also up, with SL Green executing 37 new leases in Q1 2022. While this is a positive sign for SL Green's further recovery, lease rates are being executed much lower than previous rental rates, and the company is having to offer a variety of concessions to lure tenants in, including up to 12 months of free rent, which undoubtedly will hurt its performance in the coming year or two.
The uncertainty surrounding the return to the office is the reason share prices are still down around 30% from pre-pandemic levels. It's also the reason SL Green's dividend return is nearing a very attractive 6%. A bonus for investors is that SL Green's dividend is paid monthly. It also has a long track record of dividend increases, maintaining dividend payments even during the pandemic. Investors making a $2,000 investment in SL Green today would receive around $192 in dividend income this year.
Simon Property Group
Like it did for SL Green and STORE Capital, the pandemic shattered business for malls as demand for in-store shopping came to a screeching halt. This was terrible news for Simon Property Group, the largest operator of outdoor shopping centers and high-end malls across the globe. The rise in vaccination rates and a slowdown in the spread of the coronavirus has helped mall demand return to more normalized levels, but Simon Property Group hasn't quite rebounded.
Net operating income, FFO, base minimum rent, and occupancy are all up year over year as of Q1 2022, but are still below Q1 2022 levels, indicating the full recovery is still a ways off. The silver lining is Simon's size and liquidity. Simon has $8.2 billion in available cash, which is a lot of money to cover its debt obligations, maintain dividends, and help the company both recover and expand its presence globally.
Share prices are sitting 31% below pre-pandemic levels, certainly due to the strain malls are still facing. Simon cut dividends in 2020 to help conserve cash during uncertain times but has since raised its dividend four times. Today's dividend payment of $1.70 per share provides a 6.21% return. This is still 19% less than its payments at the start of 2020, but I'm hopeful dividend raises will continue. A $2,800 investment in Simon Group today would net investors roughly $156 in dividend income, helping cap off the $500 dividend income goal with these three REITs.