Equities are more volatile than ever as macroeconomic headwinds pile on. The recent data revealing slowing economic activity in China has raised major concerns regarding a global economic slowdown, as China is the manufacturing hub of the world. The major U.S. benchmark indexes are currently down more than 13% year to date.
As the Fed gears up to execute another 75 basis point rate hike this month, the real estate market is expected to remain strong. The rising federal funds' rates are likely to spill over to mortgage rates, meaning that interest income for most real estate investment trusts (REITs) is poised to rise in the upcoming months. This trend should boost their dividend yields as well, as REITs are required to distribute at least 90% of their taxable earnings to shareholders through dividend payouts.
Simon Property Group Inc. (NYSE: SPG)
SPG is one of the largest commercial REITs in the United States, operating approximately 199 properties across North America, Europe and Asia. An S&P 100 company, SPG is the largest owner and operator of shopping malls in the U.S.
With a 6.93% dividend yield, it is one of the best REITs for passive income generation. Simon Property has a payout ratio of 117.41%, which is impressive. In fact, the REIT raised its quarterly dividend payout by 25 cents or 16.7% year-over-year to $1.75 for the fiscal third quarter of 2022 payable on September 30. This follows impressive revenue and earnings reported in the most recent quarter. For the three months ended June 30, SPG’s revenues came in at $1.28 billion. Operating income (before other items) improved by nearly 4% year-over-year to $626.76 million.
SPG also raised its 2022 full-year guidance, as stated in its latest earnings release, which is indicative of further potential dividend hikes in the upcoming quarters.
Realty Income Corp. (NYSE: O)
Realty Income is also known as the Monthly Dividend Company® because of its long-standing history of monthly payouts. The REIT has raised its dividends 116 times since its listing in 1994, earning its membership in the S&P 500 Dividend Aristocrats Index. In addition, Realty Income is a constituent of the S&P 500 index. The San Diego-based trust currently owns and manages more than 11,400 properties across the U.S., Puerto Rico, the U.K. and Spain.
Realty Income’s total returns have risen at a 15.1% compound annual growth rate (CAGR) over the past 28 years since its listing on the New York Stock Exchange. Its dividend payouts have risen at a 4.4% CAGR over this period, as the company paid 626 consecutive monthly dividends to shareholders.
The stock currently pays $2.97 in dividends annually, translating to a 4.38% yield. The company’s strong financials and growth prospects should allow it to maintain its monthly dividend payout policy over the long term. Realty Income’s occupancy stands at 98.9% as of June 30, 2022, the highest in 10 years. Moreover, the REIT reported a 105.6% recapture rate on releasing activity last quarter. It is currently planning to invest more than $6 billion in fiscal 2022 to expand its global real estate portfolio.
Annaly Capital Management Inc. (NYSE: NLY)
With approximately $82 billion in total assets, NLY is a leading player in the residential mortgage finance market. The REIT primarily invests in mortgage-backed securities. Though Annaly’s book value declined marginally sequentially because of macroeconomic headwinds, the REIT’s earnings remained strong. Its net income for the six months ended June 30, 2022, nearly doubled year-over-year to $2.89 billion.
Regarding this, David Finkelstein, Annaly’s CEO and president said, “These [macroeconomic] pressures weighed on our book value, though our portfolio again generated earnings that exceeded our dividend. Despite these challenges, we remain constructive on the outlook for Agency MBS given historically attractive new investment returns and increased clarity from the Federal Reserve on the path forward for interest rate hikes and quantitative tightening.”
The stock pays $0.88 in annual dividends, yielding an impressive 13.48%. In fact, NLY has one of the highest annual dividend yields among its peers.
Analysts expect Annaly’s revenues to rise by 34.80% year-over-year to $638.80 million in the fiscal third quarter (ending September). This increase should boost NLY’s dividend payouts in the upcoming quarters as well.
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