Saul Centers REIT Hikes Dividend, Offers 3.5% Yield (BFS)

The Saul Centers REIT pays a 3.5% current yield and has hiked its annual dividend for five consecutive years.

The company’s most recent dividend hike was almost 7%. While the company’s dividend performed well over the past five years, the share price rose only 36% over the same period and fell almost 11% over the past 12 months. However, some investors might see the current price drop as a buying opportunity, at least in the short term.

The company will pay its next dividend distribution on January 31, 2018, to all its shareholders of record before the January 16, 2018, ex-dividend date.

Saul Centers, Inc. (NYSE:BFS)

Founded in 1993 and based in Bethesda, Maryland, Saul Centers, Inc. is an equity real estate investment trust (REIT). The company operates and manages nearly 60 shopping center and office properties in six U.S. states and the District of Columbia, totaling more than 9 million square feet of leasable space. The REIT generates approximately 85% of its cash flow from properties in the metropolitan Washington, D.C./Baltimore area.

The REIT boosted its quarterly dividend payout 2% from $0.51 in the previous period to the $0.52 payout in the first quarter 2018. This new quarterly distribution is equivalent to a $2.08 annualized payout and 3.5% yield. The current yield exceeds the REIT’s own 3% five-year average yield by 16.3%.

The company paid a steady $1.56 annual dividend between 1995 and 2004 and then boosted its annual payout for the four subsequent years. Unfortunately, the company had to cut its dividend 18.6% in 2009 and another 5.9% in 2010 following the financial crisis. Between 2010 and 2013, the REIT paid a flat $1.44 annual distribution every year, and it resumed hiking the annual dividend in 2014. Since resuming dividend boosts, the REIT has enhanced its annual payouts at an average growth rate of 7.6% per year.

The share price began its trailing 12-month period from a 52-week high of $66.80 and fell 15.7% towards its 52-week low of $56.33 by May 17, 2017. Nearly 80% of that drop occurred in the last 30 days before the mid-May 52-week low. After the May bottom, the share price reversed direction, but it took nearly five months to recover completely all the losses from that 30-day period drop.

Since spiking to $65.30 on October 13, 2017, the share price pulled back and closed on January 3, 2018 at 59.60, which is 10.8% below the 52-week high from one year earlier and 5.8% higher than the 52-week low from May 2017.

The REIT’s dividend income was not enough to overcome a 10.8% share price drop and the company delivered a 5.76% total loss to its shareholders for 2017. Over the last three years, shareholders received a 15.1% total return. The stock has posted a 57.3% total return over the past five years.

While the recent share price drop might scare away some investors, others might see this drop as a buying opportunity if they believe that the share price will recover, as it did in the past. The brick-and-mortar retail segment has taken serious hits from online retailers over the past few years. However, a REIT that generates 85% of its cash flow from an area surrounded by half of the 10 richest counties in America might have a chance to prosper, at least in the near future.

Investors that do not need the cash income from this REIT’s dividend immediately could consider converting their dividend distribution to additional shares at a discounted price by participating in Saul Centers’ Dividend Reinvestment Plan (DRIP). Saul Centers, Inc. offers its own DRIP where common shareholders can purchase shares with no fees and with an additional 3% discount.

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