Great companies don't go on sale very often, but rising interest rates have put notable downward pressure on a number of well-run real estate investment trusts (REITs). If you are looking for reliable dividend stocks, it would be a mistake to not at least look at landlords like Federal Realty (FRT -0.37%), Realty Income (O -0.17%), and W.P. Carey (WPC -1.70%). All have impressive dividend histories and stocks that are off their 52-week highs by 10% or more. Here's a primer on each.
1. The REIT king
As a dividend investor, the first thing you'll probably want to know about Federal Realty is that it is a Dividend King. In fact, its 55 years' worth of annual dividend increases is the longest streak in the REIT sector. A company has to be consistently successful to create a record like that.
The driving force here is Federal Realty's laser-like focus on owning the best assets in the best locations. Given its rather modest portfolio of around 100 strip malls and mixed-use properties, it is actually kind of a small REIT. The key is that the properties it does choose to own are located in populous regions with very wealthy residents. The average wealth/population combination in the company's portfolio is higher than that of any of its strip mall peers.
Simply put, it owns properties in exactly the locations that retailers want to be. For example, during the 2020 pandemic it was fielding inquiries from stores with nearby locations because they wanted to upgrade to one of Federal Realty's properties.
This is the foundation that allows the board to raise the dividend even when times are tough, like during economic contractions. The stock is off its 52-week high by roughly 10%, and the yield is 4.2% or so. It's probably not an amazing value today, but if you want a consistent dividend stock at a fair price, you should put this one on your list.
2. Like clockwork
Realty Income is a net-lease REIT. That means that it owns single-tenant properties for which the tenants are responsible for most property-level costs. It's a pretty low-risk approach to real estate so long as you have a large enough portfolio. With an over-$40 billion market cap and more than 12,000 properties (76% of rents are from retail assets), Realty Income counts as large. In fact, it is by far the largest net-lease REIT you can buy.
The real story here, however, is what Realty Income does with the scale it has achieved. For starters, the company's vast size allows it to make big deals that smaller peers couldn't. On top of that, its size gives it greater access to capital markets. On the stock front, investors have historically provided the company a premium valuation, giving it a leg up there. On the bond front, the company has an investment-grade-rated balance sheet, also giving it preferential access to cash. And low capital costs mean that Realty Income can turn a profit where smaller peers could not.
To be fair, given its size, Realty Income needs to invest a lot of money to grow its top and bottom lines. But if you appreciate slow and steady, the REIT's roughly-5% yield backed by 29 years of annual dividend increases might be right up your alley. The shares are 18% below their 52-week highs. Oh, and the monthly pay dividend (management actually trademarked the name "The Monthly Dividend Company") is kind of like collecting a paycheck.
3. Spreading its bets
W.P. Carey is the second-largest net-lease REIT, with a market cap of $14 billion and a portfolio of around 1,475 properties. And while its streak of dividend increases is the shortest here, it has hiked the payout annually since its 1998 initial public offering (IPO). It is kind of hard to complain about that. The yield, meanwhile, is the highest at 6.3%. Those in search of a lofty yield will probably find it attractive. The stock is nearly 25% below its 52-week high.
What sets W.P. Carey apart is diversification. It has exposure to the industrial (29% of rents), warehouse (24%), office (17%), retail (16%), and self storage sectors (4%); "other" makes up the rest of the rent roll. It also generated around 39% of its rents from outside the United States, mostly from Europe. That's more diversification than you will find at just about any other REIT. But, like Realty Income, the key is what W.P. Carey does with this diversification.
Essentially, W.P. Carey is a highly opportunistic real estate investor. It prefers to do sale/leaseback transactions with companies looking to raise capital for other purposes. But because of its broad portfolio, it can shift between sectors and geographic regions to find the best deals. The long string of annual dividend increases is a sign of its success in this effort. Those focused on maximizing the income their portfolios generate will probably find W.P. Carey even more attractive than Realty Income.
Time for some deep dives
A big problem today for REITs is rising interest rates, which make competing income options (like CDs) more attractive and puts pressure on property markets (rising loan costs). But Federal Realty, Realty Income, and W.P. Carey are truly industry-leading REITs that are trading at what appear to be fairly (in some cases particularly) attractive prices. Don't let the short-term gyrations of interest rates stop you from getting to know these reliable dividend payers today.
