3 Top Quality REITs With Safe Dividends (2024)

Income investors looking for high-yield stocks with growth potential should consider investing in real estate investment trusts, or REITs for short. The appeal of REITs is straightforward: REITs allow anyone the opportunity to profit from real estate properties, without actually having to own property. REITs operate across a number of sectors, including industrial, healthcare and retail.

REITs are required to distribute the vast majority of their taxable income to shareholders in exchange for a favorable tax status. As a result, investors can find high dividend yields across the REIT universe. In this way, real estate can be accessible to stock market investors as a way to generate passive income for retirement.

In addition, investors should focus on REITs with quality business models and sustainable dividend payouts. These three REITs have safe dividends, even in a recession, along with their high yields.

Realty Income (O)

Realty Income (NYSE:O) is a retail-focused REIT that owns more than 4,000 properties. It owns retail properties that are not part of a wider retail development (such as a mall) but instead are standalone properties. This means that the properties are viable for many different tenants, including government services, healthcare services and entertainment.

In the 2023 first quarter, the company’s net income available to common stockholders was $225 million, equivalent to 34 cents per share. Normalized funds from operations (FFO) per share increased by 2% to $1.04 compared to the same period last year. Adjusted funds from operations available to common stockholders was $650.7 million, or 98 cents per share.

Realty Income generates its growth through growing rents at existing locations, via contracted rent increases or by leasing properties to new tenants at higher rates but also by acquiring new properties. In the first quarter, the company invested $1.7 billion in 339 properties and properties under development or expansion. The initial weighted average cash lease yield for these investments was 7%.

The company also expects to increase its investments in international markets during the next couple of years. Indeed, it made a first deal in the U.K. in 2019 and plans to do more such deals in the future when it finds attractive targets. These acquisitions will help drive profits in the long run.

Realty Income is well-known for its monthly dividend payments. Indeed, the company has now declared consecutive monthly dividends for over 50 years. Realty Income has also increased its dividend for over 25 consecutive years, placing it on the exclusive list of Dividend Aristocrats. In fact, Realty Income is only one of three REITs on the Dividend Aristocrats list. Shares currently yield 5.4%.

Federal Realty Investment Trust (FRT)

Federal Realty (NYSE:FRT) was founded in 1962 and concentrates in high-income, densely populated coastal markets in the U.S., allowing it to charge more per square foot than its competition.

In the 2023 first quarter, revenue increased by 6.3% year-over-year to $273.06 million. The company achieved 3.6% growth in comparable property operating income for Q1 and signed 101 leases for 504,502 square feet of comparable space. Net income for common shareholders was 65 cents per diluted share. After impressive Q2 results, Federal Realty raised its full-year guidance range for FFO.

Federal Realty’s future growth will come from a continuation of higher rent rates on new leases and its impressive development pipeline fueling asset-base expansion. Margins are expected to continue to rise slightly as it redevelops pieces of its portfolio and same-center revenue continues to move higher. As the economy emerges from the Covid-19 crisis, we expect results to support the long-term thesis for Federal Realty as same-store NOI continues to grow and occupancy remains robust.

Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT.

Federal Realty’s competitive advantages include its superior development pipeline, its focus on high-income, high-density areas and its decades of experience in running a world-class REIT. The company has increased its dividend for over 50 years in a row, placing it on the Dividend Kings list. FRT is the only REIT on the Dividend Kings list.

Essex Property Trust (ESS)

Essex Property Trust (NYSE:ESS) invests in West Coast multifamily residential proprieties. It engages in development, redevelopment, management and acquisition of apartment communities and a few other select properties. Essex has ownership interests in several hundred apartment communities consisting of over 60,000 apartment homes.

On July 27, Essex announced its second-quarter earnings results. In Q2, core FFO per share was $3.77, exceeding the consensus of $3.73 but lower than the previous quarter’s $3.65 and the same period last year’s $3.68. Same-property scheduled rents rose 1% compared to the previous quarter and 5.2% compared to the same period last year. Same-store property net operating income increased to $280.8 million from $274.1 million in Q1 and $271.2 million in Q2 of 2022.

The company raised its 2023 earnings guidance primarily due to higher same-property revenue and lower property taxes in Washington. The company increased its 2023 core FFO per share guidance to a range of $14.88 to $15.12. That’s up from the previous range of $14.59 to $14.97. This new guidance is slightly above the consensus estimate of $14.85.

For Q3, the company expects core FFO per share to be between $3.69 and $3.81. The average analyst estimate is $3.70.

Essex Property Trust is a high-quality apartment REIT that has raised its dividend for 29 consecutive years from the time it first became a publicly traded trust. Real estate has a natural moat and Essex’s exposure to high-value cities with strong technology cultures further widens that moat.

However, apartments generally have a more elastic supply than single family homes, which offsets some of that protection. This was shown during the previous recession, when the trust’s FFO fell, but not by an extreme amount, and Essex was able to continue raising its dividend.

The trust has a solid BBB+ credit rating and currently has a very healthy interest coverage ratio and net-debt-to-adjusted-EBITDA ratio. ESS stock has a 3.9% yield.

On the date of publication, Bob Ciuradid not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to theInvestorPlace.comPublishing Guidelines.