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3 REITs That Could Help Your Portfolio Weather a Recession

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Inflation concerns are refusing to abate and experts fear that the Federal Reserve’s efforts to tame inflationary pressure through rate hikes might push the economy toward a recession.

A moderation in Consumer Price Index readings and an indication from the Fed about lowering the magnitude of the rate hike from December came as a relief. However, the recent employment report exhibited a strong labor market as well as higher-than-expected wage growth, suggesting that the inflation fight by the Fed might be tougher.

Dividend-Paying Stocks Gain Focus

Amid these uncertainties and increased volatility, the focus has now shifted to investing in quality companies with a consistent track of paying dividends. Obviously, this brings us to the REITs because solid dividend payouts are arguably the biggest enticements for REIT investors as U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends. This has enabled the industry to stand out and gain a footing over the last 15-20 years.

Particularly, REITs like VICI Properties Inc. (VICI - Free Report) , Mid-America Apartment Communities, Inc. (MAA - Free Report) and Regency Centers Corporation (REG - Free Report) look poised to not only deliver better results but also reward shareholders simultaneously.

Why REITs?

According to the third-quarter data from the Nareit Total REIT Industry Tracker Series (T-Tracker®) report, even amid a period of high inflation as well as rising rates, REITs’ operational performance exhibited strength with 14.9% and 8.1% year-over-year increases in funds from operations (FFO) and net operating income (NOI), respectively.

With REITs continuing to experience earnings growth, this special hybrid asset class remains well-positioned to deliver a decent stream of dividend income to investors.

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.

Per the third-quarter 2022 NAREIT report, leverage ratios remained near historic lows, with debt-to-market assets at 34.5%, while interest coverage increased to six times. Moreover, net interest expense as a percent of NOI was near its historical low at 18.9%. Also, REITs have extended the maturity of their debt with the weighted average term to maturity of REIT debt now being more than seven years, or 84 months. As such, REITs remain well-positioned for ongoing economic uncertainty.

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 to 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 REITs

However, not all 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 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 REITs that have five-year historical dividend growth of greater than or equal to 0.001 (including 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our Choices

New York, NY-based VICI Properties Inc. is an experiential REIT engaged in the business of owning, acquiring and developing gaming, hospitality and entertainment destinations.

VICI Properties enjoys the ownership of three of the most iconic entertainment facilities on the Las Vegas Strip, namely Caesars Palace Las Vegas, MGM Grand and the Venetian Resort Las Vegas. The company has made concerted efforts to grow its portfolio and team up with the best-in-class tenants. Such efforts are likely to aid VICI’s performance in the coming quarters.

Analysts seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for 2022 FFO per share has been revised 4.9% north over the past week to $1.92.

VICI pays out a quarterly dividend of 39 cents per share ($1.56 annualized), which gives it a 4.63% 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 11.7%. Check VICI Properties’ dividend history here.

VICI Properties Inc. Dividend Yield (TTM)

VICI Properties Inc. Dividend Yield (TTM)

VICI Properties Inc. dividend-yield-ttm | VICI Properties Inc. 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 #2. 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 6 cents upward over the past week to $8.42. Also, the consensus mark for 2023 FFO per share has moved north over the past week to $9.18.

MAA pays out a quarterly dividend of $1.25 per share ($5.00 annualized), which gives it a 3.14% 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 4.95%. Check Mid-America Apartment’s dividend history here.

Headquartered in Jacksonville, FL, Regency Centers Corporation’s properties include high-quality neighborhood and community shopping centers merchandised with highly productive grocers, restaurants, service providers, and best-in-class retailers. The company’s focus on necessity, service, convenience and value retailers serving the essential needs of the communities provides it with an unequaled strategic advantage.

Regency’s well-located premium shopping centers in the affluent suburban areas and near urban trade areas, where consumers have high spending power, enable it to attract top grocers and retailers. Its focus on grocery-anchored shopping centers ensures dependable traffic. Further, a strong tenant base, an encouraging development pipeline and a solid balance sheet act as tailwinds.

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 3 cents upward over the past month to $3.99.

On Nov 2, Regency announced that shareholders of record as of Dec 16, 2022 would receive a dividend of 65 cents per share on Jan 4, 2023. This marks an increase of 4% from the prior dividend.

REG paid investors $2.50 per share, or 3.80%, on an annual basis. The company has increased its dividend five times in the last five years. The five-year annualized dividend growth rate is 2.94%. Check Regency Centers’ dividend history here.

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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MidAmerica Apartment Communities, Inc. (MAA) - free report >>

Regency Centers Corporation (REG) - free report >>

VICI Properties Inc. (VICI) - free report >>

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