Whether March comes in like a lion and leaves like a lamb, or vice versa, remains to be seen. But either way, it's a good time to prepare your investment portfolio to spring forward.
Some sectors have proven to be sound performers through all kinds of economic weather. They include real estate and, more specifically here, multifamily property owners operating as real estate investment trusts (REITs).
Three REITs to consider now because of their performance records and prospects going forward are Mid-America Apartment Communities (MAA +1.20%), Essex Property Trust (ESS +1.40%), and Camden Property Trust (CPT +1.33%).
NYSE: ESS
Key Data Points
Steady income at a sale price
These residential REITs are trading at share prices now down about 20% to 30% from last year at this time, a reflection of interest rate hikes and concerns over the ability of big landlords like them to raise rents -- and revenue -- at the pace they have in the past couple years.
But as the chart below shows, they also have nice long-term records of total return, which includes share price movement and dividend payouts. They have handily beat a good proxy for this sector, the Vanguard Real Estate ETF, an exchange-traded fund that generally holds about 160 REITs.
CPT Total Return Level data by YCharts
They also have nice market niches, if you can consider owning some 102,000 units in about 300 apartment communities concentrated in the most job-rich metros across the Sunbelt and Southeast to be simply a niche. That's the case with Mid-America, which brands itself as MAA.
Essex, meanwhile, has a portfolio of about 62,000 units in 252 communities almost exclusively in and around the high-tech, high-income areas of Southern California, the San Francisco Bay area, and Seattle. Camden, meanwhile, has about 58,700 apartments in its 172 properties scattered across high-growth markets from Washington, D.C., to south Florida, Nashville, Houston, Phoenix, and Southern California.
NYSE: CPT
Key Data Points
Payout ratios that pad the passive income
Speaking of niches, REITs can nicely fill a spot between bonds and savings instruments and growth stocks, providing investors with reliable passive income -- profiting from real estate ownership without having to manage or directly own it. In that regard, a good metric to look at for REITs is funds from operations (FFO) per share, typically regarded as the REIT equivalent of earnings per share.
This chart shows how MAA, Camden, and Essex have done in the past five years in dividend, share price, and FFO movement.
Now let's consider the payout ratio, a measure of how much of a REIT's stash is used to pay cash to shareholders and thus how comfortably it can support those dividend payments. Based on cash flow, Camden's current payout ratio is about 34%, while Essex is at 59% and MAA is at 54%. These are very sustainable payout levels and point to the ability to raise dividends going forward.
That has indeed just happened with Essex, which on Feb. 23 announced a 5% increase in its quarterly payout that marked its 29th consecutive year of dividend increases. That performance, along with the modest payout levels the REIT has sustained and the solidity of the markets it inhabits, helps offset concerns about the dip in FFO per share over the past couple years. Essex stock is currently yielding about 3.8% at a share price of about $230.
NYSE: MAA
Key Data Points
MAA, meanwhile, has raised its dividend for 13 straight years and is yielding about 3.4% at about $163 a share, and Camden has pumped its payouts by an average of 5.5% over the past three years and is yielding about 3.2% while selling for about $116 a share.
Sale price for the march to building wealth
Any of these REITs would make a good addition to an income-focused portion of a stock portfolio, and their lowered prices add to that allure. Camden is by one key measure perhaps the cheapest right now, with a price-to-FFO per share ratio of about 11.6, compared with a still quite reasonable 16 for MAA and 18.3 for Essex.
An investment in each or all of them this month can help your slow, steady march to building wealth and funding a retirement or other well-laid plans for the months ahead.
