Dividend stocks have been under a lot of pressure over the past year because of rising interest rates. Higher rates give income-focused investors more lower-risk options as the rates on bonds and CDs rise. That weighs on the shares of dividend-paying stocks, causing their yields to rise.
Getty Realty (GTY -0.18%), EPR Properties (EPR 0.10%), and Kimco Realty (KIM -0.54%) currently stand out to a few Fool.com contributors for their attractive dividend yields. Here's why they think this trio can add some sizzle to your passive income this summer.
This REIT is ready to rally as the summer driving season heats up
Marc Rapport (Getty Realty): Getty Realty is a real estate investment trust (REIT) that has a very narrow niche in a very recession- and inflation-resistant business: gas stations, auto parts and related shops, car washes, and convenience stores.
The trust currently owns 1,047 free-standing properties in 39 states and the District of Columbia and its net-lease arrangement with its tenants, primarily national and regional brands, leaves most of the maintenance, taxes, and insurance to them while it rakes in the cash to pump out a consistent stream of passive income and some share price growth, too.
Getty Realty stock has been outperforming the greater market and the REIT sector over the past three years since the initial pandemic plunge, as shown in this chart comparing its total return against a major REIT index and the S&P 500.
Data source: YCharts ^CRUSREIT
The company's properties are nearly 100% occupied and concentrated in urban areas. Seventy percent of them are corner locations and with the average lease having nearly nine years left to run and an annual rent escalator of about 1.6% to help ensure growing income.
What Getty Realty lacks in diversification it makes up for in reliability. REITs are required to pay out most of their taxable income as dividends, and after 10 straight years of dividend increases Getty Realty stock is yielding about 5% with a payout ratio of about 58% based on cash flow that points to the ability of the trust to keep reliably covering that obligation.
Getty stock is trading about 9% below its 52-week high and, with its financial stability and necessity-based business model, could well be set to sizzle as the summer driving season heats up.
The potential for blockbuster total returns
Matt DiLallo (EPR Properties): EPR Properties has taken its investors on a less-than-exhilarating ride in recent years. Shares of the REIT focused on experiential properties, such as movie theaters, plummeted during the pandemic, and recovered in its aftermath, only to fall again after the parent of a key tenant (Regal Entertainment) entered bankruptcy. The company's stock price is currently about 25% below its 52-week high. That has it trading at an enticing dividend yield of 7.8%.
Better days appear to be ahead for this high-yielding REIT. Regal has continued to pay rent throughout the bankruptcy process. Meanwhile, its parent expects to exit bankruptcy this summer. That should help lift some of the weight off EPR's stock price, assuming no major changes to its existing leases with Regal.
Meanwhile, the theater market, which makes up 41% of its income, is improving. Chief Executive Officer Greg Silvers stated on the first-quarter earnings call: "At an industry level, we are encouraged by the continued substantial growth in box office revenues as content production ramps up. Additionally, we are excited to see the significant news of both Amazon and Apple committing to spend $1 billion a year toward movies with theatrical releases."
Box office receipts were up 28% in the first quarter to $1.7 billion, while the second quarter is off to a great start following the blockbuster release of The Super Mario Bros. Movie.
EPR also continues to make strides in its diversification strategy. It's building and buying experiential properties to reduce its dependence on theaters.
With a near-term upside catalyst and a high-yielding monthly dividend, EPR Properties could deliver sizzling total returns this summer.
Omnichannel retailing is benefiting Kimco Realty
Brent Nyitray (Kimco Realty): Kimco Realty is a REIT that focuses on open-air, supermarket-anchored strip malls and mixed-use properties. As of Dec. 31, 2022, the company held full or partial ownership of 532 shopping centers with 90.8 million square feet of gross leasable area in 28 states. The company's major markets are in the Sun Belt and coastal city metropolitan areas, primarily in the suburbs. The biggest tenants include T.J. Maxx parent TJX Cos., Home Depot, and Albertsons.
There is a shortage of high-quality retail space in the U.S., the result of underbuilding over the past decade. Part of this was due to the mistaken idea that e-commerce would displace brick-and-mortar stores. This hasn't happened, and omnichannel retail is taking share. This refers to retailers that sell both in store and online. The buy-online, pick-up-in-store model is attractive for many retailers because it lowers logistics costs and encourages impulse buys in the store. Consumer spending has remained strong, particularly for nondiscretionary items, which benefits Kimco's grocery and drug store anchors.
Kimco is forecasting 2023 funds from operations (FFO) per share of between $1.54 and $1.57 per share. REITs generally use FFO in lieu of net income as reported under generally accepted accounting principles (GAAP) because it better reflects the actual cash flows of the company. Based on the midpoint of this projection, Kimco is trading at 11.7 times estimated FFO per share, which is a reasonable multiple for a high-quality REIT. The dividend, which was last hiked in September 2022, is $0.23 per share, which gives the company a dividend yield of 4.9%.
