Companies with high dividend yields often have higher risk profiles. That's because they usually pay out a significant percentage of their free cash flow in dividends, leaving them little wiggle room if market conditions deteriorate. That puts them at greater risk of reducing their dividends.
However, according to analysts' projections, several high-yielding stocks should have plenty of cushion to maintain their big dividends over the next couple of years. Among those with payouts above 5% that stand out as safe options are three real estate investment trusts (REITs): EPR Properties (EPR +1.41%), Kilroy Realty (KRC +1.98%), and Simon Property Group (SPG +2.50%).
Plenty of room to navigate a tenant issue
EPR Properties is a specialty REIT focused on experiential real estate, with a dividend that currently clocks in at 7.7%. The company generates plenty of earnings to cover its annual dividend of $3.30 per share.
Analysts polled by FactSet Research Systems estimate that EPR Properties will generate about $4.93 per share of adjusted funds from operations (AFFO) this year, giving it an 11.4% free-cash-flow yield at the recent share price. That implies that shares are trading at a low valuation, since the S&P 500 currently trades at a free-cash-flow yield of around 5%. Meanwhile, analysts see AFFO rising to $5.12 per share in 2024, increasing free-cash-flow yield to 11.9%. That gives the REIT's dividend lots of breathing room.
NYSE: EPR
Key Data Points
That cushion is nice to see, considering that the REIT is facing a notable headwind that has weighed on its valuation, driving up its yield. Cineworld Group, the parent of theater operator Regal Entertainment, filed for bankruptcy last fall. While it didn't pay rent in September, it resumed rental payments the following month.
That situation is currently weighing on the stock. However, Raymond James analyst RJ Milligan believes we'll get more clarity on the outcome of the negotiations between the two companies this year. As that occurs, it should lift the weight on the stock, which is one of that analyst's current favorites.
This dividend should continue standing tall
Kilroy Realty's dividend currently yields 5.4%. The office REIT generates plenty of funds from operations to cover its annual dividend payment of $2.16 per share. Analysts polled by FactSet expect the company to produce $3.40 per share of AFFO this year, giving it an 8.6% free-cash-flow yield. Meanwhile, they see a slight decline to $3.38 per share in 2024, giving it a free-cash-flow yield of 8.5%. That still leaves it with lots of room for the dividend.
NYSE: KRC
Key Data Points
While demand for office space hasn't recovered from the pandemic, Kilroy's properties are holding up better than others in the sector; its portfolio was 92.9% leased at the end of last year. The year ended strong as Kilroy achieved its highest leasing volume in the fourth quarter. The company also has several development and redevelopment projects underway that should help boost its future rental income.
This dividend stock isn't going out of style
Simon Property Group's dividend currently yields 5.7%. The mall REIT also produces plenty of cash to cover its $7.20-per-share annual dividend, which the company has increased by 9.1% over the past year. Analysts polled by FactSet expect the REIT to produce about $11.08 per share of AFFO this year, giving it an 8.8% free-cash-flow yield. Meanwhile, they see that rising to $11.39 per share in 2024, increasing its forward free-cash-flow yield to 9.1%.
NYSE: SPG
Key Data Points
Despite their increasing adoption of e-commerce, consumers still like to shop at malls and outlet centers. Sales per square foot at the REIT's U.S. malls and premium outlets rose 5.6% last year, and that's driving demand for space in its properties. Last year, Simon Property Group signed leases for 14 million square feet, pushing occupancy at its U.S. malls and premium outlets up by 1.5% to 94.9%, while rents rose by 2.3%.
Simon also completed several redevelopment projects and opened a new premium outlet center in Japan. With more development projects underway, the REIT should continue to produce lots of cash to support its hefty dividend.
These big payouts look safe
EPR Properties, Kilroy Realty, and Simon Property Group offer big-time dividends. That's partly due to their lower valuations, evidenced by their relatively high free-cash-flow yields. Analysts believe these companies will generate more than enough cash to cover their outsized dividends for at least the next couple of years. That makes them enticing options for investors seeking to generate lots of income.
