Dividend-paying stocks can be wonderful investments. The best ones offer a compelling passive income stream and stock price appreciation potential as they grow their earnings and payouts. That income and growth combo can add up to a strong total return over time.
Regency Centers (REG -1.32%), Camden Property Trust (CPT 1.44%), and Kimco Realty (KIM -0.22%) stand out to a few Fool.com contributors for their income and upside potential. This trio of real estate investment trusts (REITs) currently offers dividends yielding more than 3% (double the S&P 500's dividend yield). Here's why they think investors should buy shares hand over fist right now.
This REIT yields consistent dividends and growth potential
Marc Rapport (Regency Centers): Regency Centers is one of the largest owners of grocery-anchored shopping centers in America. It has built a nice record of annualized average total return of about 9.6% since this real estate investment trust went public in 1993.
Jacksonville, Florida-based Regency has also built its portfolio over that time to 404 centers concentrated in affluent suburban markets on both coasts. That 54 million square feet of retail space is 95% occupied and anchored by necessity-based, recession-resistant retailers like Whole Foods, Publix, Safeway, and Trader Joe's.
And it's growing. Regency recently announced the $1.4 billion acquisition of Urstadt Biddle Properties, which will add 77 properties and 5 million square feet of retail space in the New York City suburbs when that all-stock deal closes later this year.
As befitting an income stock, Regency has been a stable investment for some time now, raising its investment each year for the past nine and trading in the $60 to $75 range over that time. It's currently yielding about 4% at a share price of about $65, and analysts give it a consensus target price of $68.25, so they see some potential upside to this long-term dividend machine as well.
They also rate it a "moderate buy." Me, too. I don't currently own Regency shares but intend to soon, and will likely add to it regularly, given its consistent performance as a nice dividend play for my retirement portfolio.
Cashing in on migration trends
Matt DiLallo (Camden Property Trust): Camden Property Trust pays a compelling dividend, which currently yields 3.5%. The residential REIT backs that payout with a high-quality portfolio. It owns over 58,700 apartment homes in 172 communities across 15 major markets, predominantly in the Sun Belt region.
The REIT's focus on the fast-growing Sun Belt region enables it to capitalize on the robust demand for housing. Population and job growth trends are driving up occupancy and rental rates across the area. That's allowing Camden to generate growing rental income from its properties.
Rising demand for housing in the region is also enabling Camden to continue investing to expand its portfolio. The REIT is currently investing $661 million to build an additional 1,950 apartment homes across six new communities, including its first two single-family rental home communities in Texas. In addition, the REIT has acquired enough land to invest nearly $1.4 billion to build over 3,350 additional homes in nine communities. These additions will help grow its rental income in the future.
Camden Property has a strong financial profile, giving it the flexibility to grow its dividend while also investing to expand its portfolio. It has a relatively low dividend payout ratio (less than 60% of its expected 2023 funds from operations). Meanwhile, it has a strong investment grade balance sheet, giving it a lot of funding capacity.
Camden's strong portfolio enables it to generate lots of growing rental income to cover its 3.5%-yielding dividend. Meanwhile, it also positions it to capitalize on the growing demand for housing in the Sun Belt.
Kimco has exposure to some of the top suburban markets
Brent Nyitray (Kimco Realty): Kimco Realty is a REIT that develops grocery-anchored open air shopping centers. It focuses on developing properties in driveable, first-ring suburbs of major metropolitan areas in coastal and Sun Belt markets. As of March 31, 2023, Kimco operated 529 properties with 90 million square feet in gross leasable area.
Kimco's geographical focus is a key to its growth strategy and to its ability to maintain occupancy and rental growth. Kimco estimates that its Sun Belt markets exceed the overall United States population growth rate by 64%, and its Coastal markets have incomes that are 22% higher than the United States average.
Like most REITs, Kimco suffered a drop in occupancy during the pandemic's height. However, occupancy is rebounding and the company is approaching pre-pandemic levels. At the end of the first quarter, Kimco's occupancy was 95.8%, which is in striking distance of the pre-pandemic level of 96.4%. Online retailers have been perceived as a threat to brick-and-mortar retailers, but we are seeing a change as many retailers favor the omni-channel model. The buy online/pick up in store model is great for retailers as they can save on logistics costs, and the business model encourages people to enter the store and possibly make further purchases.
Retail real estate construction collapsed in the aftermath of the Great Recession, and new construction is a shadow of its former self. This restricted supply helps support leasing spreads and continued rent growth. Kimco is guiding for 2023 funds from operations (FFO) to come in between $1.54 and $1.57 per share. At current levels, this puts the company on a price to FFO ratio of 13.5 times, with a dividend yield of 4.4%.
