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3 Residential REITs With Solid Dividend Despite Inflation Woes

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Inflation woes are refusing to abate and the ongoing anticipation of a rate hike in the upcoming policy meeting of the Federal Reserve to tame inflationary pressure is making the market jittery. REITs are no exception and their historical dependence on debt is making investors all the more skeptical.

However, it won’t be prudent to shy away from this sector as there are several pockets of strength in this hybrid asset class. Particularly, the REIT And Equity Trust - Residential industry happens to be one of them. Housed within the broader Finance sector, this industry carries a Zacks Industry Rank #82. This places it in the top 33% of more than 250 Zacks industries, reflecting the industry’s bullish prospects.

In the upcoming days, residential REITs are poised to benefit as rental housing demand remains robust, with young adults forming new households and the job market showing improvement. De-densification and the desire for more space are resulting in fewer adults per apartment, thereby creating incremental demand for renting units. Also, due to the high cost of homeownership, the transition from being a renter to a homeowner is difficult. Thus, renting apartments units emerges as a viable option.

As far as REIT shareholders are concerned, solid dividend payouts are arguably the biggest enticements. Residential REITs like Equity Residential (EQR - Free Report) , Mid-America Apartment Communities, Inc. (MAA - Free Report) and BRT Apartments Corp. (BRT - Free Report) look poised to not only deliver better results but also reward shareholders simultaneously.

In fact, global uncertainties helped dividend-paying stocks gain traction. Therefore, income-seeking investors still have a large appetite for REIT stocks as U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends. Indeed, this has enabled the industry to stand out and gain a footing over the last 15–20 years.

Now if REITs’ historical dependence on debt makes investors skeptical in a rising rate environment, then it needs to be noted that over the years, REITs have managed their balance sheets efficiently and are now well prepared for a rising rate environment. Instead of looking for debt to finance the portfolios, these companies have strategically resorted to equity capital over the past decade.

What’s more encouraging is REITs’ characteristic of providing natural protection against inflation. Particularly, both rents and real estate values have a tendency to move north with prices increasing, thereby aiding dividend growth. In fact, the majority of leases are tied with inflation, which leads to rent increases as inflation goes up. Therefore, even amid the inflationary period, investment in the REIT industry can offer a steady stream of income.

Here’s How We Selected These Residential REITs

However, not all residential REITs are equally capable of keeping up their dividend-paying momentum. Therefore, to pick the right dividend stocks, we have employed the Zacks Stocks Screener and have shortlisted the residential REITs with a dividend yield of more than 2% (this criterion includes companies with a dividend yield above the S&P 500′s average dividend yield of roughly 2%). Apart from this, we have considered Residential REITs that have five-year historical dividend growth of greater than or equal to 0.001 (includes companies that have increased their dividend over the past five years).

Moreover, these stocks have a sturdy business model, which protects them from market volatility, and are known for providing a steady stream of income. As such, our shortlisted stocks carry a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our Choices

Based in Chicago, IL, Equity Residential is one of the leading, publicly-traded multi-family REITs in the United States. It is well-positioned to benefit from the improving demand for apartment living, its portfolio rebalancing efforts in the urban and suburban markets and a strong balance sheet.

It concluded a strong leasing season, driven by healthy demand and pricing for its apartment units. As a result, same-store revenue growth is on track to either match or surpass the projections mentioned in the company’s second-quarter earnings release. Also, occupancy levels remained high. Equity Residential’s efforts to diversify its portfolio in the urban and suburban markets, with an affluent tenant base, bode well. Its strategic buyouts and focus on technology and organizational capabilities to drive innovation and efficiency of its operating platform act as tailwinds.

Analysts seem bullish on this Zacks Rank #2 stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook, with estimates revised marginally upward over the past month to $3.51.

EQR pays out a quarterly dividend of 62.50 cents per share ($2.50 annualized), which gives it a 3.37% yield at the current stock price. The company has increased its dividend four times in the last five years and the five-year annualized dividend growth rate is 4.3%. Check Equity Residential’s dividend history here.

Equity Residential Dividend Yield (TTM)

Equity Residential Dividend Yield (TTM)

Equity Residential dividend-yield-ttm | Equity Residential Quote

Headquartered in Germantown, TN, Mid-America Apartment Communities — commonly known as MAA — is engaged in owning, managing, acquiring, developing and redeveloping quality apartment communities, mainly in the Southeast, Southwest and Mid-Atlantic regions of the United States.

Mid-America Apartment’s well-diversified Sunbelt-focused portfolio is set to gain from healthy operating fundamentals and a strong development pipeline. The favorable in-migration trends of jobs and households in SunBelt submarkets are likely to fuel demand. We expect strong rent growth and stable occupancy to drive revenues going forward. The prospects of its redevelopment program and progress in technology measures are likely to expand margins. Its solid balance sheet acts as a tailwind.

MAA currently has a Zacks Rank #3. The recent trend in estimate revision indicates a favorable outlook for MAA. Particularly, the Zacks Consensus Estimate for 2022 FFO per share has been revised 1.1% upward over the past two months to $8.28.

MAA pays out a quarterly dividend of $1.25 per share ($5.00 annualized), which gives it a 2.9% yield at the current stock price. The company has increased its dividend six times in the last five years and the five-year annualized dividend growth rate is 4.22%. Check Mid-America Apartment’s dividend history here.

Headquartered in Great Neck, NY, BRT Apartments Corp. is engaged in the ownership, operation and, to a lesser extent, development of multi-family properties.

With well-located properties in growth markets, this residential REIT is poised to benefit from the growth in population in-migration of jobs in its markets. Also, the shortage of quality housing is likely to act as a positive.

This Zacks Rank #2 stock has witnessed upward estimate revisions in recent times, indicating analysts’ bullish stance. The Zacks Consensus Estimate for 2022 FFO per share has been revised 5.8% upward over the past two months.

BRT pays out a quarterly dividend of 25 cents per share ($1.00 annualized), which gives it a 4.40% yield at the current stock price. The company has increased its dividend five times in the last five years and the five-year annualized dividend growth rate is 5.36%. Check BRT Apartments’ dividend history here.

BRT Apartments Corp. Dividend Yield (TTM)

BRT Apartments Corp. Dividend Yield (TTM)

BRT Apartments Corp. dividend-yield-ttm | BRT Apartments Corp. Quote

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.


In-Depth Zacks Research for the Tickers Above


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