Best Dividend Stocks For Retirement: It’s always difficult predicting when or if another recession might happen, but there are definitely signs that the economy is suffering a severe downturn at the moment.
Given the market could be in for a prolonged period of stagnation in the coming years, it makes sense to take a cautious approach with respect to new investment decisions right now.
Indeed, for those planning an income retirement portfolio, this is even more true. Safe, solid dividend-paying stocks are the order of the day, especially those with good opportunities for long-term price accumulation.
With that sentiment in mind, here are 3 defensive REIT stocks that will perform well, even amid the worst of economic conditions.
STORE Capital Corporation
With its 5.90% annual yield, STORE (NYSE:STOR) is currently the most generous real estate investment trust on our list.
The company specializes in triple net lease properties, and has performed extraordinarily well over the last few years. For instance, STOR didn’t just maintain its dividend payout during a difficult 2020 turmoil, it actually increased it at a rate of 4.4%. Furthermore, the firm continued to grow its return throughout 2021, and is expected to deliver another increase in 2022 as well.
In addition to its strong dividend growth momentum, STORE Capital is also a great fit for investors due to the particularly conservative nature of its business model.
Indeed, the REIT benefits from a huge amount of diversification, with 573 of its customers representing companies from across 121 different industries. Moreover, STOR’s top 10 customers contribute just 18% of the firm’s total base rent, while its #1 client accounts for a mere 3% of that overall share.
And its leases are pretty lengthy too, with new investments coming in at a weighted average lease term of 17 years. The company also has a high fixed-charge coverage ratio of 4.7x, meaning that the business is well-insulated against any downside costs should its tenants not be able to pay.
Most importantly, however, is the fact that STOR’s shareholders can have a high level of confidence that its dividend is well-protected for the future.
Its AFFO payout ratio has seen a declining trend since the fourth quarter of 2020, and its payout ratio is one of the smallest in the industry at just 69%. Its balance sheet is also excellent, with only around 40% leverage on its total long-term debt.
STORE’s geographically diverse portfolio of 2,965 properties is as recession-proof as possible – and with a rising dividend and a $13.2 billion pipeline covering the most vital and essential industries, this REIT is a surefire income stock for our unpredictable times.
Realty Income Corporation
Realty Income (NYSE:O) is another triple net lease real estate investment trust, but this time one that’s international in scope and with a huge $40+ billion market cap.
The business owns more than 11,200 properties, and has delivered 15.3% compound annual shareholder returns since going public in 1994. The company has aspirations to be one of the top 5 global REITs, and is seeking to consolidate the roughly $12 trillion addressable net lease market worldwide.
And just like STORE Capital before it, O is primarily interested in leasing property to businesses that are relatively robust during difficult market conditions.
Indeed, at 9.1%, the largest fraction of its annualized contractual rent (ACR) in the United States comes in the form of convenience stores, while in Europe, 5.3% are made up of grocery and similar outlets. Other important categories include drug stores, dollar stores, and casual and quick service restaurants.
In fact, retail assets account for about 83.5% of the company’s ACR, making up 64.2% of the firm’s leasable square footage. The firm’s largest tenant, Walgreens Boots Alliance, only represents 4.1% of Realty’s generated ACR, with 7-Eleven and Dollar General both coming in a close second with 4% a piece. Again, this low customer concentration helps prevent against any revenue shocks if an untoward event occurs further down the line.
One fascinating outcome of Realty’s massive property portfolio is the ability for the company to use its own proprietary data to make calculated, data-driven investment decisions. Over time, this will give the business a huge advantage against its competitors – and who knows, it could create the world’s first large-scale, AI-powered REIT in the process.
Today, Realty provides a dividend with a forward yield of 4.33% at its current share price. But despite the company having grown its revenues pretty well recently – its normalized funds from operations increased 41.7% to $1.02 per share for the three months ended March 31, 2022 – its price-to-FFO is still a little bloated at 17.1x.
But that said, the company just announced its 623rd consecutive common stock monthly dividend – which should be music to the ears of any income investors looking for a stable and decent dividend payout.
Federal Realty Investment Trust
Federal Realty’s (NYSE:FRT) latest first quarter operating results were pretty impressive, with the primarily coastal-based investment trust reporting an FFO-per-share of $1.50, up 28% from the $1.17 it made in 2021.
However, the company lost 20% of its stock value from its earlier-year highs of $139, as investors seemed put off by the firm’s premium mix of high-cost metropolitan suburb properties that have failed to attract the pre-pandemic rent prices they once did.
Even so, occupancy rates were up 170 basis points, and the company managed to post its highest ever leasing activity for the first quarter, with 119 signed leases for just under 445,000 square feet of comparable real estate.
Federal Realty is especially well-known among REIT investors for its 54 years of uninterrupted dividend growth history. This track-record makes its prospects for further growth all the more likely, and the stock represents a great choice for continued income generation.
The company’s present yield is a respectable 3.85%, and, with a forward FFO-to-payout ratio of 72%, it looks pretty safe for the time being.
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