What’s making REITs attractive?
REITs have gained popularity as an investment option owing to their high dividend yields and staggering return potential. Hopes for interest rate cuts this year by the Fed have made REITs quite a deal.
In the REIT world, FFO (funds from operations) and AFFO (adjusted funds from operations) are cleaner measures of assessing a company’s cash flows from daily operations. They’re used as operating performance benchmarks for REITs. AFFO gives investors a better idea of the cash a company has available for dividends.
A recent article by Forbes talked about a few REITs that offer excellent dividend yields. The stocks of these companies have also been soaring this year. One of them is Spirit Realty (SRC), a net lease REIT. As of March 31, 2019, its diversified real estate portfolio consisted of 1,477 owned properties. It top five tenants are Church’s Chicken, Walgreen’s, the Home Depot, Circle K, and CVS Health. The company has a dividend yield of 5.8%.
Spirit Realty reported mixed results in the first quarter. Its AFFO in the quarter fell to $73.8 million, or $0.86 per diluted share. In its earnings release, the company mentioned that it had invested $178.6 million in the quarter, including $160.3 million in the acquisition of 22 properties. Its board of directors also announced a quarterly cash dividend of $0.625 per common share. The company’s stock has shown staggering growth of 21.0% YTD (year-to-date).
Another popular REIT stock is Mid-America Apartment Communities (MAA). The company reported an increase in its AFFO in the first quarter to $1.47 per share from $1.36 per share in the same period of the previous year. It has a dividend yield of 3.2% and has returned 23.1% YTD.
Another popular REIT player is Independence Realty Trust (IRT), which currently owns and operates a total of 15,734 units across non-gateway US markets. Its first-quarter results were impressive. Its core FFO increased YoY to $16.0 million in the quarter, and its same-store net operating income also showed growth of 5.1% in the quarter. It has a dividend yield of 6.3% and has returned 26.0% YTD.
Besides these outstanding returns, investors can also enjoy dividends from REITs. How the Fed rate cuts this year drive REITs’ performances will be interesting to keep an eye on.