Realty Income and EPR Properties pay high-yielding monthly dividends, which appear to be more sustainable than AGNC Investments’ dividend.
AGNC investment (AGNC -1.02%) It has the potential for large dividend income. Real estate investment trusts (REITs) currently pay a monthly yield of over 14%. This is equivalent to 10 times the dividend income you receive from your investment. S&P500 Considering the current yield is less than 1.4%, it’s an index fund.
of Mortgage REIT monster monthly dividend Investors looking for a lot of income will probably be interested in the company’s stock. However, before purchasing a REIT, you should check the following: real estate income (oh -1.10%) and EPR properties (EPR -2.13%). It also offers high-yield monthly dividends. The big difference is that their dividend is likely to increase in the future, whereas AGNC Investment is very likely to cut its dividend again.
Built to pay durable and growing monthly dividends
The yield on real estate income is currently close to 6%. This is much lower than AGNC Investment’s monster dividend, but it’s a much more sustainable dividend. The REIT owns an increasingly diversified portfolio of income-producing commercial real estate properties, including retail, industrial, gaming, data center and other properties, and is secured by long-term guarantees. net lease. This lease structure provides stable and increasing rental income. Tenants are responsible for maintenance costs, building insurance, and property taxes. On the other hand, most leases have rent increases each year.
REITs pay out approximately 75% of their adjusted funds from operations (FFO) Dividends are paid annually. The remaining approximately $800 million a year will be used to invest in new income-generating real estate. The company also has an excellent balance sheet.that makes it very low capital cost Fund additional real estate investments.
Realty Income estimates that it has the growth momentum and financial resources to grow adjusted FFO per share by 4% to 5% annually. This should allow the REIT to continue increasing its dividend 124 times since he went public in 1994. The company has been growing its dividend at a compound annual rate of 4.3%.
Yield of blockbusters
EPR Properties offers a monthly dividend of over 8%. The REIT is helping pay for it with a growing portfolio of experiential properties, including movie theaters, restaurants, experiential lodging, and other facilities. The company leases these properties to operators on a long-term triple net lease basis, providing the company with fairly stable rental income.
The REIT pays out a fairly modest 70% of its FFO as dividends. This allows us to generate more than $100 million in excess free cash flow each year to fund new investments. We also have a strong balance sheet, giving us greater flexibility to fund new investments. EPR expects to invest between $200 million and $300 million in new properties this year. The company already plans to fund $240 million in development projects over the next two years.
The Company estimates that it has the internal cash capacity to increase its adjusted FFO per share by at least 4% annually without selling additional shares. This should allow the company to continue increasing its high-yield dividend. It gave investors a 3.6% hike earlier this year.
Further cuts may occur
AGNC Investment has a very different business model.of Mortgage REIT invest in Mortgage backed securities (MBS) Protected against credit losses by government agencies such as fannie mae. This makes it a very low-risk investment. However, they are also relatively unprofitable investments. AGNC can increase returns by using leverage, but this also increases risk.
A company’s strategy can yield significant benefits. During healthy market conditions, you can earn significant profits on the spread between the cost of capital and the interest income generated by your MBS investment. The problem is that changes in market conditions can cause spreads to tighten. Spreads can become so tight that companies may not be able to generate enough revenue to cover their costs and dividends. This has happened several times in its history, resulting in its dividend being cut many times.
AGNC Dividend Data by YCharts
There is no need to worry about cuts at this time. AGNC Investment CEO Peter Federico said on the fourth quarter conference call that the company currently generates enough revenue to cover operating costs and dividends. Meanwhile, some unfavorable headwinds appear to be weakening. However, if market conditions change and earnings no longer match costs, the dividend may need to be readjusted.
Focus on income sustainability
AGNC Investments offers spectacular yields. While this high monthly dividend seems safe for now, changing market conditions in the future could cause the mortgage REIT to change its dividend again.
Income-oriented investors should consider whether real estate income or EPR real estate is the better option for their situation. These REITs offer more sustainable monthly dividends that should continue to grow in the future. This growth could potentially allow these REITs to generate higher total returns over the long term.
Matt DiLallo holds positions with EPR Properties and Realty Income. The Motley Fool has a position in and recommends Realty Income. The Motley Fool recommends his EPR properties. The Motley Fool has a disclosure policy.
