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This year hasn't been too kind to dividend investors. More than 175 publicly traded companies have cut their payouts by at least 50%, with many suspending them for the time being. Real estate investment trusts (REITs) have been among the hardest hit, especially those focused on owning retail properties.
However, not all REITs are putting their dividends on the chopping block. Several have a stable rent roll and the financial strength to maintain their payouts during these tough times. Three that stand out for not only the durability of their dividend but also their higher yields are AvalonBay Communities (NYSE: AVB), Medical Properties Trust (NYSE: MPW), and Public Storage (NYSE: PSA). That makes them excellent options for income-seeking investors to buy this June.
Paying to keep the roof over their head
The COVID-19 outbreak has hit REITs hard. Many tenants stopped paying rent because governments forced nonessential businesses to close. However, residential REITs have fared reasonably well. For example, AvalonBay collected 93.9% of the residential rent it billed in April, which isn't too bad considering it usually only receives 97.9% of the rent due in a typical month.
The company will likely continue experiencing some minor issues collecting rent, especially given the high unemployment rate these days. However, it probably won't feel as much pressure on occupancy and rental rates as other types of real estate because people will continue needing a place to live. Because of that, its cash flow should hold up reasonably well during this downturn. Add that stability to its strong investment-grade balance sheet and a conservative dividend payout ratio of 65% of its funds from operations (FFO), and this REIT should have no problem maintaining its 4%-yielding dividend.
Healthy rent collections during a brutal period
Healthcare REIT Medical Properties Trust also hasn't had too much trouble collecting rent during the COVID-19 outbreak. Overall, it received 96% of the rent and loan payments due in both April and May. That came even though those months were especially challenging for hospitals as they battled the COVID-19 outbreak and weren't allowed to admit patients for elective procedures.
Because of the resiliency and importance of its hospital tenants, Medical Properties Trust is one of the few REITs that didn't pull its 2020 guidance. Instead, it reaffirmed its estimated FFO range at $1.65 to $1.68 per share. That implies a conservative dividend payout ratio of 65%. The company further backs its dividend, which yields nearly 6%, with a strong balance sheet, putting the payout on a solid foundation.
Essential real estate in good and bad markets
Self-storage properties have navigated the recent economic challenges reasonably well. Public Storage noted in its first-quarter earnings release that these facilities qualify as an essential business. While it has experienced some impact from the recent downturn -- including more customers moving out than in -- this has been much more moderate than the impact felt in other types of real estate like office and retail.
Still, even with the expected negative impact on same-store rental income and net operating income, Public Storage should be able to maintain its 4.1%-yielding dividend. While it does have a bit higher payout ratio -- 75% of its FFO last year -- that's still a comfortable level for a REIT, especially one with a strong balance sheet and lots of liquidity like Public Storage.
While many REITs cut or suspended their dividends this year, that's unlikely to happen with these three REITs. That's because they own essential real estate that isn't facing the same fierce headwinds as other properties. On top of that, they have conservative payout ratios and strong balance sheets to provide further support to their high-yielding payouts. That combination of factors makes them top buys for investors seeking an above-average income stream backed by real estate this month.
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