Dividend Growth Potential Key Part of REIT Story
01/30/2012
| by
Matthew Bechard
Dividends have always been a core component of the REIT investment proposition, and with investors clamoring for yield in today's market, REITs should be getting more recognition for the reliable income they provide, according to Keven Lindemann, director of SNL Financial's Real Estate Group.
"It is difficult anywhere in the fixed-income world to find a really secured yield of 4 percent or greater," Lindemann said, referring to a recent Barron's article that focused on where investors could find yield above 4 percent, but neglected to mention REITs. Out of 126 equity REITs in the FTSE NAREIT All Equity REITs Index, 71 had a dividend of 4 percent or greater. "One of the things often not taken into consideration is the opportunity for REIT dividend income growth."
Lindemann said that, of the 140 REIT stocks tracked by SNL Financial, 35 percent raised their quarterly dividends in 2011. He said he expects that trend to continue in 2012.
"If you look at where pay-out ratios are right now, the dividends are reasonably secure," Lindemann said. "AFFO pay-out ratios across the board are ranging from the mid-50 percents to the mid-80 percents, which is really pretty solid. Given that we are looking to see some good growth out of these companies relative to what we've seen in the last few years, I would expect more companies to really start boosting their dividends."
That growth potential makes REITs a very attractive investment alternative, Lindemann said.
"In uncertain economic times, income potential is something people look for," he said. "Income-oriented vehicles have become very popular with investors. People are looking for safety and security. So, the dividend component of REITs is a critical piece of the REIT story."
"It is difficult anywhere in the fixed-income world to find a really secured yield of 4 percent or greater," Lindemann said, referring to a recent Barron's article that focused on where investors could find yield above 4 percent, but neglected to mention REITs. Out of 126 equity REITs in the FTSE NAREIT All Equity REITs Index, 71 had a dividend of 4 percent or greater. "One of the things often not taken into consideration is the opportunity for REIT dividend income growth."
Lindemann said that, of the 140 REIT stocks tracked by SNL Financial, 35 percent raised their quarterly dividends in 2011. He said he expects that trend to continue in 2012.
"If you look at where pay-out ratios are right now, the dividends are reasonably secure," Lindemann said. "AFFO pay-out ratios across the board are ranging from the mid-50 percents to the mid-80 percents, which is really pretty solid. Given that we are looking to see some good growth out of these companies relative to what we've seen in the last few years, I would expect more companies to really start boosting their dividends."
That growth potential makes REITs a very attractive investment alternative, Lindemann said.
"In uncertain economic times, income potential is something people look for," he said. "Income-oriented vehicles have become very popular with investors. People are looking for safety and security. So, the dividend component of REITs is a critical piece of the REIT story."