Earnings buyers love their high-yielding dividends, however they’re not too completely happy when tough instances power actual property funding trusts (REITs) to chop the dividends. Check out three REITs at the moment providing dividends of 10% or extra and whether or not they can keep these excessive yields in future quarters.
Sabra Well being Care REIT Inc. (NASDAQ: SBRA) is an Irvine, California-based healthcare REIT that focuses on expert nursing, behavioral well being and senior housing. Sabra Well being Care owns 407 whole amenities unfold amongst 72 operators throughout the U.S.
The present dividend of $1.20 yields about 10% at a latest worth of $11.98, however is that this dividend sustainable? A number of key facets of Sabra Well being Care REIT could also be falling brief.
In 2017, Sabra Well being Care REIT paid a quarterly dividend of $0.45. For the following two years, it by no means raised its dividend. Then in Could 2020, after the COVID-19 pandemic hit, the dividend was lower to $0.30. That’s comprehensible, however not like many different REITs, Sabra Well being Care REIT has not raised its dividend since then.
As well as, the ratio of the dividend to ahead annual funds from operation (FFO) is now 80%. This excessive ratio is a purple flag because it doesn’t depart a lot room for dividend protection.
One other detrimental was that third-quarter working outcomes missed analysts’ expectations on income by 12% and FFO of $0.28 was lower than the $0.30 paid out in dividends. If that is only a one-time occasion, Sabra Well being Care REIT can deal with it, but when this persists, it could be compelled to chop the dividend to a stage beneath its FFO.
Service Properties Belief (NASDAQ: SVC) is a diversified REIT with a portfolio of 242 motels and 766 service-focused internet lease shops that covers 46 states, Puerto Rico and Canada.
At its latest closing worth of $7.63, Service Properties Belief’s annual dividend of $0.80 now yields 10.4%. Nonetheless, its five-year dividend historical past has not been nice. In 2020, Service Properties Belief lower its quarterly dividend from $0.54 to only $0.01. It remained that means till October 2022 when it was raised to $0.20.
Third-quarter earnings had been markedly improved as normalized FFO of $0.54 doubled the $0.27 mark from the third quarter of 2021. Internet earnings was a lack of $0.05 however effectively forward of the lack of $0.36 from the third quarter of 2021.
The $1.44 ahead FFO simply covers the brand new ahead $0.80 dividend with a payout ratio of 55%.
Regardless of the lackluster dividend historical past, it will seem from the latest dividend reinstatement and improved third-quarter outcomes that Service Properties Belief might be a very good candidate to keep up its dividend going ahead.
Brandywine Realty Belief (NYSE: BDN) is a Philadelphia-based workplace REIT that owns, develops, leases and manages 175 properties totaling 24 million sq. ft from its Pennsylvania headquarters to Austin, Texas.
The 52-week vary of Brandywine Realty Belief is $5.95 to $14.88, and like so many different REITs, its inventory worth has been decimated by greater rates of interest this yr. The share worth is just about 8% greater since touching the lows in mid-October.
Brandywine Realty Belief’s quarterly dividend of $0.19 has been a steady however gradual grower over the previous 5 years and presently yields 11.7% yearly. Even in the course of the worst of the pandemic, it by no means lower nor eradicated the dividend. Its most up-to-date quarterly dividend of $0.19 was paid on Oct. 20. The five-year dividend common is just 5.8%, so whereas Brandywine Realty Belief could also be undervalued, the query is can it maintain its 11.7% dividend yield going ahead?
Third-quarter 2022 FFO of $0.36 was a penny higher than the third quarter of 2021. The worth/FFO is at the moment at 4.74, and the dividend protection by the ahead annual dividend is just 55%. Each of those numbers counsel that whereas the corporate could also be dealing with headwinds for some time longer, with its steady dividend and enhancing FFO, Brandywine Realty Belief ought to be capable of keep its dividend even with the present inflationary atmosphere.
REITs are probably the most misunderstood funding choices, making it tough for buyers to identify unbelievable alternatives till it’s too late. Benzinga’s in-house actual property analysis group has been working onerous to determine the best alternatives in in the present day’s market, which you’ll be able to achieve entry to free of charge by signing up for Benzinga’s Weekly REIT Report.
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