These High-Dividend REITs Can Bring Investors Growth for Years to Come
We've identified three REITs to help investors attain passive income.
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Income investors looking for high-yield stocks with safe dividends should take a closer look at Real Estate Investment Trusts, or “REITs.”
REITs widely have high-dividend yields, which make them appealing for income investors. And, a few quality REITs have safe dividends, even during recessions, along with regular dividend increases over time. These three REITs have broad appeal for income investors looking for a mix of current yield and dividend growth.
1. Equinix (EQIX)
Equinix EQIX is a REIT that specializes in data centers. The trust operates 260 data centers across 33 countries on six continents serving over 10,000 customers. More than half of the data centers are outright owned by Equinix, and these generate 66% of recurring revenues.
Equinix’s Interconnection Solutions segment allows customers to connect directly, securely and dynamically within and between other EQIX data centers around the globe. There are currently 465,000-plus total interconnections. Customers of EQIX are telecommunications carriers, mobile and network service providers, cloud and IT service providers, digital media and content providers, and financial services companies. Equinix boasts of a 99.99% operational uptime across their global data centers. In 2023, 95% of total revenue was recurring.
The company reported first quarter 2024 results on May 8, 2024. For the quarter, the company announced a 6% increase in revenue compared to Q1 2023 to $2.1 billion. The company has thus achieved 85 consecutive quarters of revenue growth. AFFO per share increased 3% compared to the previous year quarter to $8.86.
Continued growth is likely, as Equinix continues to expand on its platform and has 50 major projects in development across 34 markets. Management provided 2024 annual guidance and expects a 6% to 7% increase in revenues. Guidance also calls for AFFO of $3.33 billion at the midpoint, a 10.5% increase over 2023. It also estimates AFFO per share to increase by 8.5% to $34.87.
EQIX has grown revenues for 21 years straight, and the company’s bottom line has also been on a straight uptrend for many years, over a decade. For the past nine and five years, Equinix has been able to grow its AFFO per share at an average annual rate of 10% and 9%, respectively.
The company’s FFO growth has allowed for strong dividend growth. For example, in October 2023, Equinix announced a 25% increase to the dividend to $4.26 quarterly per share. The forecasted payout ratio of 49% for 2024 is well covered, and leaves plenty of room for dividend increases.
The trust’s competitive advantage among the world of data center REITs is its global platform spanning 33 countries and which contains the industry’s largest and most active ecosystem of partners in their centers, creating a network effect that improves performance and lowers cost for customers. EQIX has increased its dividend for eight consecutive years and currently yields 2.1%.
2. Realty Income (O)
Realty Income O is a retail real estate focused REIT that has become famous for its successful dividend growth history and monthly dividend payments. Today, the trust owns thousands of properties. Realty Income owns retail properties that are not part of a wider retail development (such as a mall), but instead are standalone properties. This means that the properties are viable for many different tenants, including government services, healthcare services and entertainment.
Realty Income exceeded revenue expectations in the first quarter of 2024, reporting $1.26 billion in revenue following $598 million in investment volume. Its earnings slightly surpassed predictions, with normalized FFO per share reaching $1.05, a penny higher than the analyst estimate. This figure marked an increase from $1.00 in the previous quarter and $1.04 in the first quarter of 2023. Despite the positive financial performance, total expenses surged to $1.14 billion, up from $841.3 million in the prior quarter and $723.7 million a year ago, largely due to provisions for impairment and merger-related costs.
However, Realty Income reaffirmed its 2024 guidance for normalized FFO and same-store rent growth, with expectations of acquisition volume around $2.0 billion. Realty Income's President and CEO, Sumit Roy, emphasized the completion of $598 million in investment volume during the quarter, particularly highlighting the international growth in the U.K. and Europe, where the company achieved a weighted average cash yield of 8.2%.
Realty Income generates its growth through growing rents at existing locations, via contracted rent increases or by leasing properties to new tenants at higher rates, but also by acquiring new properties. Realty Income expects to increase its investments in international markets moving forward.
Due to the steady growth of Realty Income’s profits, even during the last financial crisis, the dividend looks sustainable. Realty Income pays out around 75% of its funds-from-operations to its owners in the form of dividends. Realty Income stock currently yields 5.5%.
3. Crown Castle (CCI)
Crown Castle International CCI was founded in 1994 and has since become a powerhouse in the data infrastructure business. It is structured as a REIT and operates cell phone towers with small cells where larger towers are not feasible, and fiber connections for data transmission. The trust owns, operates and leases more than 40,000 cell towers and 80,000 route miles of fiber across every major U.S. market, helping it to support data infrastructure across the country.
Crown Castle reported second quarter earnings on July 17, 2024, and results were better than expected. Funds-from operations per-share came to $1.62, which was four cents ahead of estimates. It was, however, down from $2.05 in the year-ago period. Revenue was $1.63 billion, up from $1.61 billion expected but down from $1.87 billion a year ago. Site rental revenue was down to $1.58 billion from $1.73 billion in last year’s Q2.
Adjusted EBITDA was $1.01 billion, down from $1.19 billion in the second quarter of last year. We continue to be concerned by the company’s ability to stop ceding revenue and earnings as we head into Q3 of this year. We have, however, slightly boosted our estimate of FFO-per-share for this year to $6.65.
The trust’s robust cash flow generation will afford it the opportunity to continue to pay the ample dividend. Crown Castle’s penchant for buying growth will help expand the top line, in addition to small organic revenue gains. We think the future is still bright as consumers demand more and more access to data over time, and Crown Castle is poised to deliver. In addition, its portfolio is centered in metropolitan areas with favorable long-term demand outlooks.
CCI currently yields 5.7%.
At the time of publication, Ciura had no positions in any securities mentioned.