2 Commercial REITs Complement 4%-Plus Yields with Dividend Hikes
By: Ned Piplovic,
Two commercial real estate investment trusts (REITs) offer their investors dividend yields of more than 4.25% to complement several years of dividend boosts.
While one of the REITs showed only a marginal share price growth over the past 12 months, the other REIT boosted its share price more than 30% since June 2016. Both REITs have their ex-dividend dates on June 28, 2017, with pay dates following just a couple of weeks later in mid-July.
Agree Realty Corporation (NYSE:ADC)
Agree Realty Corporation owns and manages retail properties primarily leased to national and regional retail companies in the United States. The company’s current portfolio contains about 400 assets with a total of approximately 7.5 million square feet of gross leasable space in 43 states.
In 2016, the company expanded its partnership with Lowe’s, Mister Car Wash, Hobby Lobby and Tractor Supply Company, all of which became Agree Realty Corporation’s top 10 tenants last year. Founded in 1971 by Richard Agree as the Agree Development Company, the Agree Realty Corporation became publicly traded in 1994 and is headquartered in Farmington Hills, Michigan.
The company distributes its current $2.02 annual dividend as quarterly payments of $0.505, which is equivalent to a 4.25% dividend yield. The most recent quarterly dividend payout is 2% higher than the previous period.
Between 1994, when it started paying a dividend and 2010, the REIT’s annual dividend rose slowly from $1.80 to $2.04. After cutting the annual dividend down to $1.60 over two years in 2011 and 2012, the company resumed its rising dividend payouts in 2013.
Since 2012, the annual dividend payout rose at an average rate of 4.3% over the past five consecutive years. The current annualized payout of $2.02 is less than 1% below the company’s 2010 peak annual payout of $2.04.
The company’s current share price is only marginally higher than it was in June 2016. After dropping more than 12% leading up to Election Day 2016, the share price reversed course and rose 25.6% to reach its 52-week high on June 14, 2017. The share price pulled back 7.7% in the past week and closed on June 21, 2017, just 1.8% above its price from 12 months ago. However, the share price performed much better over the five-year period and rose 162% since June 2012.
DiamondRock Hospitality Company (NYSE:DRH)
Founded in 2004 and based in Bethesda, Maryland, the DiamondRock Hospitality Company is a lodging-focused real estate company that owns 28 premium hotels and resorts with almost 10,000 rooms in North America.The company operates its hotels under multiple brands, including Sheraton, Hilton, Marriott and Westin with locations in New York, Los Angeles, Chicago, Boston, Atlanta, the United States Virgin Islands and other locations.
Since 2010, DiamondRock Hospitality repositioned its portfolio by acquiring approximately $1.8 billion of urban and resort hotels that align with its strategic goals, while disposing of more than $0.6 billion in non-core hotels. These new acquisitions increased DiamondRock’s urban exposure with additional hotels in cities such as San Diego, San Francisco, Boston, Denver and Washington, D.C., as well as resort exposure with the recent acquisitions in Sedona, California, and Fort Lauderdale, Florida.
Image Source: DiamondRock Hospitality Company – 2017 Investor Presentation
The current quarterly dividend of $0.125 converts to a $0.50 annual dividend per share and a 4.35% yield. That yield is 14.4% higher than the REITs 3.8% average yield over the past five years. Between 2011 and 2016, the company hiked its annual dividend payout at an average rate of 13% every year, which almost doubled the annual payout amount in the last five years.
After a brief spike in July and August 2016, the share price dropped back to June levels by the end of October 2016. However, between the beginning of November 2016 and December 5, 2016, the share price jumped 29% from $8.69 to $11.21. Since December 2016, the share price gained another 3% and closed on June 21, 2017, at $11.50, which is 30.5% higher than the June 2016 share price.
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