Although strong third-quarter earnings, an improving labor market, and rising consumer spending helped benchmark equity indexes hit new highs last month, concerns surrounding the resurgence of COVID-19 cases, persistently high inflation rates, and the market’s expectation of quicker interest rate hikes by the Federal Reserve than originally expected, have been fueling market volatility.
Since real estate investment trusts (REITs) are required to distribute most of their taxable income as dividends, they offer a consistent income stream. Furthermore, they can help cushion one’s portfolio during an inflationary period. Investor’s interest in REITs is evident in the Vanguard Real Estate Index Fund ETF’s (VNQ) 32.8% returns over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 22.3% returns.
Therefore, to ensure a consistent income stream amid increasing market volatility, we think it could be wise to bet on quality REITs Simon Property Group Inc. (SPG) and National Retail Properties Inc. (NNN). They have an impressive dividend payout history and offer more than 4% yields.
Simon Property Group Inc. (SPG)
SPG in Indianapolis, Ind., is a real estate investment trust that owns premier shopping, dining, entertainment, and mixed-use destinations. Its properties across North America, Europe, and Asia offer community gathering places for millions of people and generate billions of dollars in annual sales.
Last month, SPG was recognized for business sustainability leadership by the worldwide environmental non-profit group CDP, gaining a position on its renowned ‘A List’ for the second year in a row. The company has taken several steps to reduce emissions, alleviate climate concerns, and promote a low-carbon economy.
SPG’s revenue increased 222% year-over-year to $1.29 billion for the third quarter, ended Sept. 30, 2021. Its operating income grew 51.6% from its year-ago value to $612.23 million. The company’s net income surged 365.9% from the prior-year quarter to $679.93 million, while its EPS increased 331.3% year-over-year to $2.07 billion.
The company’s EPS is expected to grow 79.7% year-over-year to $6.45 in its fiscal 2021. Analysts expect SPG’s revenue to increase 9.6% year-over-year to $4.72 billion in fiscal 2021. SPG’s stock has gained 89.4% in price over the past year and 37.8% over the past nine months.
SPG’s $7.15 annual dividend yields 4.4% on its current stock price. On December 31, the company paid a $1.65 quarterly dividend. It has a 5.8% four-year average dividend yield.
SPG’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SPG has also rated a B grade for Momentum and Quality. Within the REITs – Retail industry, it is ranked #6 of 35 stocks. To see additional POWR Ratings for Sentiment, Value, Growth, and Stability for SPG, click here.
National Retail Properties Inc. (NNN)
NNN in Orlando, Fla., typically invests in high-quality retail properties with long-term net leases. The company held 3,114 properties in 48 states as of Sept. 30, 2020, with a gross leasable area of roughly 32.4 million square feet and a weighted average remaining lease term of 10.7 years.
During the third quarter, ended Sept. 30, 2021, NNN’s revenue increased 13.7% year-over-year to $180.36 million. Its operating income rose 32.4% from the prior-year quarter to $116.39 million. And the company’s net income surged 52.1% from its year-ago value to $78.45 million, while its EPS grew 50% from the prior-year quarter to $0.45.
Analysts expect NNN’s EPS to increase 25.2% year-over-year to $1.54 in fiscal 2021. In addition, the company’s revenue is expected to increase 4.2% in fiscal 2022. Also, the stock has surged 20.6% in price over the past year and 7.5% over the past three months.
NNN paid a $0.53 quarterly dividend on Nov. 15. NNN’s four-year average dividend yield is 4.6% and its current dividend payout translates to a 4.4% yield.
NNN’s POWR Ratings reflect this promising outlook. The stock has a B grade for Momentum and Quality. Within the REITs – Retail industry, it is ranked #8. Click here to see additional POWR Ratings for Growth, Value Sentiment, and Stability for NNN.
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SPG shares were trading at $159.29 per share on Tuesday morning, down $1.59 (-0.99%). Year-to-date, SPG has declined -0.30%, versus a -2.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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