Today I am publishing the November edition of the Forbes Real Estate Investor and as my subscribers can attest, most of my picks are centered on REITs with growing dividends, and the best opportunities can be found with the companies that have the highest dividend growth prospects with the widest margin of safety.
There’s simply no need to be a market timer and try to get rich buying shares in beaten-down REITs like CBL Properties or Washington Prime. Stocks with dividend increases are indicative of underlying business success, and the company would not raise its dividend if the business was not experiencing growth in revenues, profit, and FFO (funds from operations).
I have written extensively about REITs to avoid (see my latest Forbes article HERE), but today I want to provide you with a few solid REITs that are recognized for their dividend growth potential. One of the best ways to create wealth in the stock market is to remember these words: “the safest dividend is the on that’s just been raised”. Happy SWAN (sleep well at night) investing.
4 REITS That Should Continue To Boost Dividends
REIT #1: CyrusOne (CONE)
The Big Why: CONE is focused on maintaining a strong capital structure so that it can continue to build out its global platform. Now that the company has scale, it can continue to replicate its U.S. platform by expanding into international markets.
Feather in its Cap: As of the end of the quarter CONE had total liquidity of nearly $2 billion with no debt maturing until 2023, a weighted average remaining debt term of nearly six years, and an almost fully unencumbered asset base with a growth asset value of $6.5 billion. Recent Credit upgrade (S&P Global Ratings raised its issuer credit rating on CONE to ‘BB+’.).
Downsides: Rising rates, slowdown for some semiconductor companies: investors have lost confidence in the growth paradigm of many tech companies.
Bottom Line: CONE trades at -4% below the company’s 5-year trailing P/FFO – analysts forecast CONE to grow by 10% in 2019 and 2020 and this means that the company should easily sustain its dividend growth record. We are upgrading CONE to a STRONG BUY based on solid Q3 earnings results, highlighted by international expansion and robust development activities.
REIT #2: STORE Capital (STOR)
The Big Why: STORE Is a Unique Net Lease REIT (granular credit risk management, transparency). While the Triple Net industry has enormous size, STORE focuses on the highly fragmented sub-sector with few participants addressing the long-term capital needs of middle-market and larger unrated companies.
Feather in its Cap: STORE focuses on the highly fragmented sub-sector with few participants addressing the long-term capital needs of middle-market and larger unrated companies. The company believes that “the largest underserved market and, therefore, the greatest opportunity is bank-dependent, middle-market and larger companies that generally have less access to efficient sources of long-term capital.
Downsides: Casual Dining segment and exposure to weaker non-investment grade tenants.
Bottom Line: STORE also has one of the most diversified portfolios in the Net Lease REIT sector. For most investors, diversification is the simplest and cheapest way to widen your margin of safety (Graham). STORE has increased the dividend per share by 24%, while maintaining a low dividend payout ratio and at the same time reducing leverage.
REIT #3: Crown Castle (CCI)
The Big Why: The overall cell tower business model is sound and the secular tailwinds of an increasing demand for wireless connectivity hasceel tower REITs to capitalize on positive industry trends. Based on this long-term need to invest by the U.S. carriers, Crown Castle has focused its investments over the last several years in the U.S. market. Smartphones will continue to serve as the primary catalyst for growth.
Feather in its Cap: Crown Castle seeks to increase site rental revenues by adding more tenants onto wireless infrastructure, which is expected to result in significant incremental cash flows due to relatively fixed operating costs. The growth opportunity from small cells, combined with the growth from CCI’s towers, uniquely positions the company to capitalize on the evolution of wireless networks through the extension of the shared infrastructure model that continues to efficiently and cost effectively serve carrier needs.
Downsides: High concentration with tenants; however, the growth opportunity from small cells, combined with the growth from CCI’s towers, uniquely positions the company to capitalize on the evolution of wireless networks through the extension of the shared infrastructure model that continues to efficiently and cost effectively serve carrier needs.Bottom Line: Crown Castle is an indispensable REIT in the Durable Income Portfolio and the company has an attractive runway of sustained investments and growth that supports the targeted 7-8% dividend growth target. The activity across macro sites and small cells from all of CCI’s four wireless carriers provides confidence.
REIT #4: Equinix (EQIX)
The Big Why: Over the last 5 years, Equinix has generated impressive returns – shares are up an average of 25% annually – and the potential for growth is strong.bThe momentum of the business continues to drive AFFO and AFFO per share; AFFO is expected to grow 12% year over year on a reported basis.
Feather in its Cap: 9,800 customers gain value by being adjacent to other customers in our data centers and connecting to each other to efficiently pass traffic and enable the digital world. The physical manifestation of interconnection in these data center facilities is the 283,000 cross connects, which are pieces of fiber connecting one customer to another. The scale and reach of of the platform is also a differentiator.
Downsides: High net leverage ratio: 4.3x; the good side is that 99% of the debt is unsecured.
Bottom Line: For 2018, the company guided revenue growth of 16% over the previous year. AFFO is expected to grow 13% year over year on a reported basis, and the company expects to pay out dividends of $727 million, an 19% increase over the prior year and reflects an AFFO payout ratio of approximately just 45%.
I own shares in CCI, STOR, and CONE.