3 REITs With Rock-solid Dividends

REITs are benchmark assets for investors who are looking for stable income. Even among REITs, though, there are some stocks that offer more stability and security than others.

 

If you’re investing for long-term income, it’s important to find a trust that will continue to pay strong dividends year after year. Here are three REITs that boast rock-solid dividends and are in strong positions to continue raising them.

 

Realty Income Corporation (NYSE:O) is one of the most well-known and widely used REITs for generating stable dividends.

 

Realty Income focuses on retail properties with only one tenant. In most cases, the tenants in these properties are responsible for major expenses. As a result, Realty Income’s income is extremely stable and its expenditures for maintenance, property taxes and other recurring costs are quite low.

 

Realty Income’s dividend currently stands at 4.49 percent, with each share paying $2.96 annually.

 

Since 1994, the company has raised its dividend 114 times. This impressive history of dividend increases, paired with a generous yield, makes shares of O good assets to hold for long-term income generation.

The company is also one of relatively few to pay dividends monthly instead of quarterly. While this doesn’t affect the overall yield, it does create a more consistent stream of income.

 

Investors who amass significant holdings in Realty Income will have a safe and largely predictable cash flow each month. This makes O one of the better stocks to hold in retirement, as it can supplement social security payments and other income sources.

 

This REIT offers several advantages in terms of stability. To begin with, its focus on retail space gives it a broad and diversified customer base. The company does, however, also have enough exposure to e-commerce to limit risks in the retail sector.

 

Even among REITs, Realty Income is notoriously conservative when it comes to capital allocation. O is also quite strong in terms of its balance sheet. This REIT historically uses a low-leverage approach that keeps its risks to a minimum.

 

Despite keeping its risks low, Realty Income has historically been a very solid performer. Counting dividends, O shares have returned over 210 percent over the past 10 years. This compares favorably to the average REIT performance of only about 150 percent. This makes Realty Income a rare case of high returns at low levels of risk.

 

Prologis (NYSE:PLD) is a trust that invests in industrial and logistics properties. The company focuses on securing leases with long-term, highly stable tenants. Because of increasing demand for commercial properties in the logistics sector, Prologis is a safe bet operating in a very stable and lucrative market.

 

Prologis pays a significantly lower yield than Realty Income, with its dividend currently at 1.73 percent. Each share pays $3.16 annually.

 

Unlike Realty Income, Prologis schedules its payments according to a more traditional quarterly dividend structure. This isn’t a massive downside, but it is something to consider if you’re seeking out reliable income in retirement.

While Prologis may not yield as much as Realty Income, it more than makes up for that shortcoming in its sheer stability.

 

Industrial and logistics companies tend to be more stable tenants than commercial retail businesses. As a result, Prologis boasts one of the safest real estate portfolios imaginable. The company is also priced a bit more attractively than Realty Income. Prologis has a P/E ratio of just under 38, compared to more than 70 for Realty Income.

 

The lower dividend yield is also a bit of a blessing in disguise for Prologis. Although you may not see as much reward today, the company reinvests heavily into new opportunities. As a result, Prologis has a considerable amount of room left to grow and may gradually increase its yield as time goes on.

 

Industrial real estate continues to be a strong performer in today’s market. As old tenants gradually make way for new ones, Prologis will be able to charge higher rents and increase its revenues.

 

Rounding out the list of REITs with very stable dividends is Camden Properties Trust (NYSE:CPT). This trust is focused on the residential side of real estate and maintains a large portfolio of apartment buildings. As consumer rents increase, this REIT is in an excellent position to produce generous profits.

 

CPT shares pay a bit more than Prologis but still less than Realty Income. The stock currently yields 2.03 percent for an annual dividend of $3.76.

 

Like Prologis, CPT pays its dividends quarterly. The company’s dividend saw a sharp increase late in February when it was announced that the quarterly payment would be raised to $0.94. This was an increase of 13.3 percent compared to the previous dividend of $0.83.

Where Camden Property Trust stands out from other apartment REITs is in its strategic growth approach. The company has invested heavily in 15 of the fastest-growing rental markets in the United States.

 

While rents are increasingly at a rapid rate across the nation, rental fees in these markets are going up at an even faster rate as the number of potential tenants continues to outpace housing supply. As a result, Camden should be able to capitalize on these growing markets for several years to come.

 

Needless to say, the combination of a housing focus and the aforementioned growth strategy make CPT’s dividend extremely safe. Housing income will remain consistent, especially in rapidly growing cities. Even in the event of a downturn, expect Camden to prosper.

 

CPT is also in a very strong position to continue its expansion into the future. The company keeps its leverage low, allowing it to invest in new opportunities as they arise. Few of Camden’s debts are due in the near term, which also supports continued investment in new projects.

 

Historically, CPT has more or less kept pace with the S&P 500 index. This makes it one of the better REITs in terms of overall price growth. If the yields continue to rise as rental income increases, expect CPT to be a very strong choice for income-producing portfolios.

 

As you can see, all of these REITs have their strengths. If you are simply looking for the highest yield, Realty Income is the clear winner. With a yield that is more than twice as high as either of the other two REITs and extremely stable historically, shares of O may be the best single choice. This is especially true if you’re an older investor looking for long-term retirement income.

 

With that said, there’s still an argument to be made for diversifying your investment among these three trusts. Prologis’ exposure to the industrial sector, for example, could allow it to take advantage of post-pandemic demand for logistics facilities.

 

Likewise, Camden Property Trust could see more rapid growth as its high-demand market strategy bears fruit. Since all three trusts specialize in different types of real estate, they are subject to different market forces and types of risk.

 

Investors who diversify their REIT holdings will likely achieve even more stability than any one trust could provide. Although each of these REITs is extremely stable, spreading your capital out among them to minimize sector-specific risk is still a good strategy.

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