Are you looking for stocks with chunky yields that won't give you sticker shock with their prices? A good place to find such securities is in the real estate investment trust (REIT) sector. In order to maintain their REIT status, these companies are required to distribute at least 90% of their taxable income to shareholders in the form of dividends.
As you might expect, this makes their payouts rather high in terms of yield. Here's a look at two generous payers in the sector with the magic combination of high yield, modest share price, and solid fundamentals. Read on for more about W.P. Carey (NYSE:WPC) and EPR Properties (NYSE:EPR).
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1. W.P. Carey
Most REITs concentrate on a single real estate category. W.P. Carey is an outlier in that its aim is diversification, with no segment weighing too heavily in the portfolio. Industrial is No. 1, comprising a little over 35% of the company's 1,430 properties. This is followed by warehouse (28%), retail (22%), and Other (15%). The REIT is also spread out in terms of geographies.
W.P. Carey was even more diverse in the past, when it held a clutch of office properties. The company exited this category by hiving it off into a separate company (Net Lease Office Properties). This was a smart move given the segment's queasy decline during -- and continued weakness since -- the coronavirus pandemic.
Jettisoning a business is painful and difficult for any company, and this was manifested in a 20% reduction in the REIT's vaunted dividend in September 2023. No investor loves a dividend cut, and W.P. Carey's wobbly stock price since then reflects lingering annoyance over the measure.
Yet what's left of the company is doing quite well, thank you very much. In its most recently reported quarter, it blew past analyst estimates with revenue of nearly $398 million, which was up by 2% sequentially. (A year-over-year comparison isn't meaningful, since in mid-late 2023, the company still held the office properties.)
Meanwhile, adjusted funds from operations (AFFO), the most critical profitability yardstick for REITs, ticked up 1% to $259 million, or $1.18 per share. And though the dividend still isn't nearly what it once was, it's been boosted -- if only incrementally -- four times in a row, to $0.88 per share.
Better times lay ahead. After an expected revenue decline of almost 10% in full-year 2024 -- radical adjustments to a portfolio will do that -- the clutch of analysts tracking W.P. Carey stock are modeling a 7% rise in the line item for this year. For this company and other REITs, revenue and AFFO tend to move roughly in concert, so we can expect higher profitability too.
Where profitability goes with REITs, so goes shareholder remuneration. I think those dividend raises will continue, maybe even gathering pace at some point. That's particularly encouraging given that W.P. Carey's dividend yield is already nice and chunky, at over 6%.
2. EPR Properties
EPR Properties isn't as diverse in its portfolio mix as W.P. Carey, but it's still got quite an offbeat and unique collection of holdings. Almost all (93%) of these are "experiential" properties, mainly movie theaters, but also places like fitness facilities and amusement parks. The rest of the portfolio consists of educational facilities, specifically private schools and early childhood education centers.
Another quality EPR Properties shares with its fellow REIT is a recent saga with its dividend. Since the company was highly exposed to properties that people avoided during the pandemic's height, it had to batten down the hatches during that period. It suspended its shareholder payout entirely for over a year before reinstating it, at a lower level ($0.25 per share versus over $0.38), in July 2021.
While the company's recovery hasn't always been smooth, it's generally doing a good job getting back on its feet. Following a nearly 40% fall in annual revenue in 2021 to just under $410 million due to the pandemic, the top line has popped since, most recently landing at almost $706 million in 2023 -- which topped the pre-pandemic $655 million of 2019. AFFO rose by 8% in the former year to more than $400 million.
Yet EPR Properties still trades as if it had contracted COVID. Much of this has to do with those movie theaters, which as of the company's latest reported quarter constitute 36% of the experiential portfolio.
With streaming video services in millions of homes, the film exhibition business isn't as robust as it was in years past. Cinemas are very specific pieces of real estate, and management's current efforts to adjust this segment of the portfolio are going to take some time to bear fruit.
The rest of the company's holdings are thriving, though, and those dividend payments have been on the rise again. Since reinstatement, they've grown from that $0.25 level to almost $0.29 -- fairly incremental, but still a nice stamp of confidence in the underlying business.
One attraction of this is the dividend yield, which tips the scales at over 7%. What's more, the REIT is one of those rare birds on the stock exchange that pays out its distribution monthly instead of quarterly. With this company, you don't have to go three months before getting some coins in your pocket.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
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