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Dividend yields have come down over the years as some sectors have prioritized share buybacks instead of paying dividends. However, one industry where payouts are still pretty high is real estate. That's mainly due to the rules regarding real estate investment trusts (REITs), which must distribute at least 90% of their taxable income to shareholders to remain in compliance with IRS rules.
Because of that, the sector has hundreds of companies that pay dividends with higher yields than the S&P 500's current average of 1.8%. Three that stand out as excellent buys this month are Agree Realty (NYSE: ADC), Camden Property Trust (NYSE: CPT), and Duke Realty (NYSE: DRE).
A rock-solid retail real estate play
Agree Realty is a retail REIT that currently checks in with a nearly 3.9%-yielding dividend. While the retail sector has been under lots of pressure in recent years from e-commerce -- made worse by the COVID-19 outbreak -- Agree Realty's portfolio is immune to these issues. That was clear during the third quarter as the company collected 97% of the rent it billed and signed deferral agreements covering another 2%.
Two factors are driving the company's strong rental collection rates. First, roughly two-thirds of its tenants have investment-grade credit, which gives them more financial flexibility during tough times. On top of that, the REIT focuses on owning freestanding properties secured by triple net leases with retailers less sensitive to disruptions from economic downturns and e-commerce (e.g., home improvement, grocery stores, pharmacies, and convenience stores). Add in its top-notch balance sheet, and Agree Realty's dividend is one of most durable in the retail real estate sector.
A well-located apartment portfolio
Apartment-focused residential REITs have also been under some pressure this year. Tenants in high-cost coastal markets like San Francisco, New York City, and Boston have been taking advantage of their ability to work remotely during the pandemic by moving to lower-cost areas. That has hammered occupancy and rental rates in those cities' urban cores, weighing on REITs with heavy exposure to those areas.
However, Camden Property has been immune to these trends because it has avoided those high-cost areas, opting instead to own a more diversified apartment portfolio. That paid dividends during the third quarter as the REIT's FFO held up much better than its rivals. Because of that and its top-notch balance sheet, Camden's 3.6%-yielding dividend is on one of the firmest foundations in the sector.
High-demand real estate
One real estate subgroup that hasn't been under any pressure this year is logistics properties. Because of that, industrial REIT Duke Realty is thriving. The company recently reported excellent third-quarter results, driven by strong rent collection and increased occupancy. Those factors gave Duke Realty the confidence to increase its dividend by 8.5%, boosting its yield to an above-average 2.7%.
Demand for industrial real estate is so strong that Duke is on pace to exceed its initial pre-pandemic guidance for 2020. That's because the outbreak is driving higher e-commerce sales and forcing companies to carry higher inventory levels to combat future supply-chain disruptions. As a result, the company started two more speculative development projects to help meet future projected demand growth. Add that upside to the company's already extensive pipeline of pre-leased and speculative projects, and it has lots of growth ahead. That should give it plenty of fuel to keep increasing its dividend.
Excellent ways to collect higher yields backed by real estate
While 2020 has been a tough year for the real estate sector, it hasn't been a complete washout. Companies with the right portfolio or focused on the right subsector have thrived this year. That's certainly been the case for Agree Realty, Camden Property Trust, and Duke Realty. Because of that, they stand out as great buys right now for investors looking for above-average dividend payments from the real estate sector.
Unfair Advantages: How Real Estate Became a Billionaire Factory
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