Elite REITs — Five Rising, Dependable Real Estate Dividends: DLR, HCN, OHI, SNH, UBA, UBP

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Jun 27, 2011
Because they’re required to return 90% of their taxable income to shareholders, real estate investment trusts (REITs) can be extremely alluring to yield hunters. But that same distribution obligation also leaves little margin for error, which can cause an imprudent organization’s payout to become unwieldy in very short order.


And that’s when dividend cuts happen.


To avoid the pain of having a juicy dividend pulled out from under them, investors shopping for a quality REIT should look far beyond yield. They should search for companies that A) have been able to consistently improve their dividends and B) still possess the potential for future earnings growth. Then look for that dependability at a reasonable price.


Below is a surprisingly diverse crew of five REITs I uncovered while trudging through that exact process. They meet all of the following criteria:


  • Each company has increased its annual dividend output for at least five consecutive years (through 2010) without a single cut. However conservative, their payouts have continued to march in the right direction despite the recent real estate collapse.
  • They all currently yield at least 4%, which means investors won’t have to wait for their payouts to grow into respectability. They provide solid income right away.
  • Each company’s current dividend rate is less than 80% of the consensus earnings estimate for its next fiscal year. Analysts see their profits rising, a scenario that will undoubtedly lead to even more dividend growth.
  • They all trade at less than 15 times the aforementioned earnings estimates. So they’re not especially pricey, despite the remarkable income, income growth and stability they provide.
By the numbers, these five “Elite REITs” certainly stand out amongst their high-yielding peers:


Digital Realty Trust (DLR, Financial) owns, acquires, develops, redevelops and manages technology-related real estate, specifically datacenter facilities.


The company initiated a quarterly dividend shortly after its 2004 public offering, and has been aggressively increasing its payout ever since. Digital Realty has given its shareholders nine raises — including a 28% boost in February — generating 179% dividend growth during its short period as a public company.


Shares of DLR currently trade at $60.64, where they feature a 4.49% dividend yield. The consensus analyst estimate calls for a 2012 profit of $4.44 per share, giving the company a forward payout ratio of just 61.3% — by far the lowest on this list. At its current level, the stock trades at just 13.7x future earnings.


Health Care REIT (HCN, Financial) owns and operates a portfolio of senior living and general health care properties, including senior housing communities, skilled nursing facilities, medical office buildings, inpatient and outpatient medical centers, and life science facilities.


Health Care REIT has delivered uninterrupted quarterly dividends for more than 40 years, and grown its annual dividend output every year dating back to 2004, most recently giving shareholders a 3.62% raise in February. The company is currently on pace to deliver its biggest year-over-year dividend growth since 1999.


Shares of HCN are trading at $52.27, where they carry a 5.47% dividend yield. Analysts currently expect the company to earn $3.82 in 2012, giving it a forward payout ratio of 74.9% and a future earnings multiple of 13.7.


Omega Healthcare Investors (OHI, Financial) invests in long-term healthcare properties, principally skilled nursing facilities. As of March 31, the company owned or held mortgages on nearly 400 properties with approximately 46,000 beds, spread across 35 states.


Omega has improved its annual dividend total every year since reinstating its payout near the end of 2003, and momentum seems to be building. The company has increased its dividend in four of the last six quarters, most recently giving shareholders a 2.7% raise in April. Omega has raised its payout by a total of 153% during its streak, tallying 27% growth just since the start of 2010.


Shares of OHI are trading at $20.39, where they feature a 7.45% dividend yield. The consensus analyst view currently calls for a 2012 profit of $1.92 per share, putting the company’s forward payout ratio at 79.17%. At its current level, the stock trades at just 10.6x future earnings.


Senior Housing Properties Trust (SNH, Financial) invests in functionally- and geographically-diverse properties for seniors, including assisted living communities, nursing homes, medical offices, rehab hospitals and wellness centers. As of March 31, the company’s portfolio consisted of more than 300 properties (containing 27,000+ living units) spread across 37 states and Washington, D.C.


The company initiated its quarterly dividend in 2000 and raised its payout for the first time in 2002, beginning an annual dividend growth streak that’s still going strong. Senior Housing’s most recent dividend hike came in October 2010, when it gave shareholders a 2.8% raise.


Shares of SNH are currently trading at $23.48, where they feature a 6.30% dividend yield. Analysts expect the company to earn $1.93 per share in 2012, putting its forward payout ratio at 76.7% and its earnings multiple at just 12.2.


Urstadt Biddle Properties (UBA, Financial) invests in open air retail properties, primarily buying and improving existing grocery-anchored shopping centers in communities within commuting distance of New York City.


The company has been been paying uninterrupted dividends for more than 40 years, going all the way back to its first year of operations (1969). Urstadt Biddle announced a 1.03% dividend hike in December that took effect in January, making 2011 the 17th consecutive year the company has given its shareholders a raise — quite a streak considering what the rest of its industry has been through in recent years. According to the company’s 2009 annual report, more than 80% of all publicly-traded retail REITs either reduced or eliminated their dividends in 2009 alone.


Shares of UBA are currently trading at $18.04, where they feature a 5.43% dividend yield. Analysts expect the company to earn $1.23 per share in 2012, giving it a forward payout ratio of 79.7%. At today’s level, the stock trades at 14.7x future earnings.


It’s worth noting that Urstadt Biddle also trades under the ticker symbol “UBP” – however, the UBA class is more liquid and features a higher dividend. The UBP shares carry 20 times the voting rights, and are mostly owned by management, who trade their shares very infrequently.