Stocks broadly have taken a nasty tumble over the past year. However, even in that context, some stocks stand out for their lower valuations relative to their peers. Three dividend stocks that are trading at cheap values these days are Simon Property Group (SPG -0.26%), STAG Industrial (STAG -0.17%), and Camden Property Trust (CPT 1.44%). Here's why some Fool.com contributors believe that bargain-hunting investors should check out this trio.
Simon is cheaper than its competitors
Brent Nyitray (Simon Property Group): Simon Property Group operates high-end shopping malls and premium outlet malls. The real estate investment trust (REIT) also owns an 80% non-controlling interest in Taubman Centers and a stake in French retailer Klepierre. Simon is recognized as one of the best-run U.S. mall operators. It also is trading cheaply compared to some of its peers. The macroeconomic environment for retailers has remained healthy given the strength of the U.S. labor market. People have jobs, and are getting raises. This means good things for retailers and mall operators.
Last year, Simon earned funds from operations (FFO) of $11.95 per share. REITs like Simon use FFO in lieu of earnings per share as reported under generally accepted accounting principles (GAAP). This is because depreciation and amortization are big GAAP expenses, but they aren't actual cash charges. They are accounting conventions, not things that a company would need to write checks for. This means that GAAP net income tends to understate the cash-flow-generating capacity of a REIT. It also means that REITs may appear to trade at high price-to-earnings ratios. However, when you look at their price-to-FFO ratios, the multiples make much more sense.
In the table below, I have put Simon's price-to-FFO ratio and dividend compared to some of its competitors. Simon Property Group has the highest dividend yield and the lowest price-to-FFO ratio.
| REIT | Price-to-FFO Ratio | Dividend Yield |
|---|---|---|
| Simon Property Group | 10 | 5.9% |
| Macerich | 11.2 | 5.7% |
| Tanger | 10.1 | 4.7% |
As long as the labor market remains strong, Simon Property Group should continue to perform well. Simon's $7.20 dividend is easily covered by its FFO per share of $11.95.
Dirt-cheap compared to its peers
Matt DiLallo (STAG Industrial): STAG Industrial is a bargain compared it its industrial REIT peers. The company trades at less than 16 times its 2023 estimate for FFO. That's well below its peer-group average of 21. For example, industry leader Prologis fetches about 23.5 times FFO while Rexford Industrial Realty and Terreno Realty trade at nearly 30 times FFO.
The primary reason those rivals trade at higher valuations is their focus. They concentrate on logistics real estate like warehouses, and center their portfolio on specific markets -- Rexford, for example, operates in just one area: Southern California. STAG, on the other hand, takes a more diversified approach. It owns warehouses and light manufacturing facilities across many markets.
However, the company has significant exposure to the high-demand logistics real estate market. Meanwhile, manufacturing is seeing a renaissance in the U.S. as more companies reshore their manufacturing due to supply chain issues. Because of that, rents are growing briskly across STAG's portfolio. Cash rents rose by an average of 14.3% last year on new and renewal leases.
STAG gives investors exposure to the high-demand logistics sector and equally attractive manufacturing real estate space at a much lower valuation than its peers. Because of its dirt-cheap price, investors can generate more dividend income from the stock. STAG's yield is currently 4.4%, well above the 2.5% to 2.8% yields offered by more expensive rivals such as Prologis, Terreno, and Rexford. Add in that Stag pays its dividends monthly, and it's a great option for those seeking to generate passive income from the real estate sector.
Dividend growth at a beaten-down price
Marc Rapport (Camden Property Trust): As anyone who has been apartment shopping recently probably well knows, rental digs are not cheap right now, especially in the high-growth, low-unemployment urban areas across the Sunbelt and other high-demand markets.
But there are bargains to be had among some large owners of such properties, including, for example, Camden Property Trust, owner of 172 properties with about 58,700 rental units in markets such as Phoenix, Washington, D.C., Southern California, South Florida, Nashville, Tennessee, and its hometown of Houston.
Camden is coming off a 2022 in which it posted record growth in same-store revenue, net operating income, and FFO. And while it's forecasting less stellar growth in 2023, those metrics are still growing.
Meanwhile, this residential REIT's stock is trading for a third less than it was a year ago, another casualty of rising interest rates and falling expectations for rapid income growth.
But for that $114 or so a share, you'll get a nice flow of passive income. Camden is currently yielding about 3.3% after raising its dividend by an annualized 5.5% over the past three years. And its long-term price appreciation and total returns have consistently outpaced the sector benchmark Vanguard Real Estate ETF.
One key measure of valuation for a REIT is its price-to-FFO ratio. Currently, that's about 9.8 for Camden, much lower than the average REIT, and well below the ratio of its much larger multifamily REIT peer, Mid-America Apartment Communities, which is trading at 14.7.
Based on cash flow, Camden's current payout ratio also is a quite modest 34%, meaning you get a lot of dividend safety, and room for more increases, at a reasonable price.
