Dividend stocks are not a homogeneous group. There are different ways to skin the dividend cat, so to speak. This is why some dividend investors will find Rexford Industrial (REXR -0.06%) attractive. Others will prefer Realty Income (O -0.47%). A few more adventurous souls might be more attracted to EPR Properties (EPR -0.61%). Here's a quick look at each of these high-yield dividend stocks.
What does Rexford Industrial do?
Real estate investment trust (REIT) Rexford Industrial, as its name implies, buys industrial properties like warehouses and factories. That's a fairly focused approach, but Rexford takes it even further. It only buys properties that are located in Southern California. If you value diversification, this probably won't be the best choice for your portfolio. But if you are fond of dividend growth, well, it is hard to argue with success. Over the past decade, Rexford Industrial's dividend has increased at an impressive annual rate of 13%. The current yield is 4.2%, which is near the highest levels in the REIT's history.
There are two questions to ask here. First, why is the dividend yield so high, historically speaking? The answer is that Wall Street has cooled on the industrial property sector after getting a bit too excited about the sector's prospects coming out of the coronavirus pandemic. The second question is, how has the dividend grown so quickly? The answer is that, because of still-strong demand and the low supply of industrial properties in Southern California, Rexford has been able to raise rents at a very rapid clip. In the third quarter of 2024, for example, the average rent increase on expiring leases was a huge 39.2%.
Even if the rate of rental growth fell to half that level, it would still be impressive and support continued strong dividend growth. If you are a dividend growth investor, this could be a good addition to your portfolio today while the REIT looks historically cheap.
What does Realty Income do?
Compared to Rexford Industrial, Realty Income is a giant tortoise. Over the past 30 years, Realty Income's dividend has grown at around 4.3% a year, on average. While that dividend growth rate is relatively slow, it is still above the historical rate of inflation growth over time, which means the buying power of the dividend has increased over the years. And then, you have to consider the much higher 5.8% dividend yield. That's a nearly 40% income boost over Rexford.
The core of Realty Income's portfolio is net lease retail properties. Net leases require tenants to pay most property-level operating costs. It is a fairly low-risk approach when spread over a large portfolio. Realty Income is the largest net lease REIT with over 15,400 properties. While retail is the focus, making up around 75% of rents, the REIT also owns industrial assets and spreads its portfolio over both North America and Europe. It is one of the most diversified REITs you can buy. If you are looking for a reliable high-yield stock, Realty Income should definitely be on your shortlist today.
What does EPR Properties do?
Rexford has increased its dividend annually for roughly a decade. Realty Income's streak is up to three decades. EPR Properties cut its dividend during the coronavirus pandemic and only has three years of dividend increases under its belt at this point. This is not an appropriate choice for most investors, but if you like turnaround stories it might still interest you.
EPR Properties owns experiential assets that bring people together in group settings (think amusement parks and movie theaters). That was a terrible focus to have during a pandemic that spread most easily in group settings. So, it isn't shocking that the dividend was cut as the company worked with its tenants to ensure they could survive that difficult period. At this point, however, the rent coverage -- a tenants pre-rent operating profits divided by rent -- for its overall portfolio is better today at 2.1x than it was prior to the start of the pandemic when it was 1.9x.
That isn't to suggest that all of the REIT's problems are behind it. It has a heavy overweighting in movie theater properties, which are still struggling. However, management is working on that issue (selling theaters, reworking leases, etc) as it continues to move forward with the turnaround. The dividend yield is a lofty 7.3%, so investors are being compensated handsomely for the risk here. And the adjusted funds from operations (FFO) payout ratio was a healthy 66% in the third quarter. All in, if you can stomach some uncertainty, it seems like EPR Properties' turnaround is moving along nicely.
Different dividend stocks for different investors
Dividend investing isn't a one-size-fits-all investment approach. The stories behind Rexford, Realty Income, and EPR Properties show that very clearly. If you are a dividend growth investor, Rexford will be your speed. If you are looking to maximize the income your portfolio generates while taking on as little risk as possible, Realty Income will be more appropriate. And if you don't mind taking on extra risk for extra reward, EPR Properties' turnaround will likely be of interest to you.
