Although there’s been more positive inflation news lately, fears of a subsequent recession continue.
Tech companies such as Meta Platforms Inc., Twitter Inc., Tesla Inc., Oracle Corp. and Microsoft Corp. have been laying off thousands of workers. The Federal Reserve just released a report showing a sharp rise in American household debt. The new and pre-existing housing markets are at a standstill, with mortgage rates around 6.5%.
Recessions, like inflation, can do real damage to real estate investment trusts (REITs) as tenants stop paying rent or space goes vacant. And when REITs lose revenue and funds from operations (FFO) decline, dividend cuts are sometimes possible.
But many REITs survive the worst and manage to adapt during any economic cycle without cutting dividends. Here are three REITs from different subindustries that, based on their dividend history, earnings and other factors, should survive dividend cuts even through a bad recession:
Federal Realty Investment Trust (NYSE: FRT) is a Maryland-based diversified REIT that owns 105 shopping malls and offices as well as 3,400 residential units. A member of the S&P 500, Federal Realty Investment Trust has been in business since 1962 and is one of the oldest REITs on Wall Street.
Federal Realty Investment Trust holds the REIT record for annual dividend increases of 55 years and counting. It recently increased its quarterly dividend from $1.07 to $1.08, and the $4.32 annual dividend yields 4%. The dividend is well covered by annual FFO of $6.28, and its third-quarter earnings beat expectations.
In short, Federal Realty Investment Trust could be the most reliable dividend provider in the entire universe of REIT stocks.
Essex Property Trust Inc. (NYSE: ESS) is a San Mateo, California-based residential REIT that owns and manages 62,000 apartment units in 253 communities, along with some retail space, in eight West Coast markets. Essex Property Trust was founded in 1971 and created its initial public offering (IPO) in 1994.
Essex Property Trust has a record of 28 consecutive years of dividend increases, making it an S&P 500 Dividend Aristocrat. According to its website, it was the only REIT to increase its dividend during the recession in 2010.
In the third quarter, Essex Property Trust increased its Core FFO by 18.3% from the third quarter of 2021. The forward FFO of $14.48 easily covers the annual dividend of $8.80, and yields 4.1%. This is well above the five-year average of 2.94%, so Essex Property Trust is not only a very reliable dividend provider, but down from its 52-week high of $363.36, it could be a bargain at its recent price of $212.18.
Universal Health Realty Income Trust (NYSE: UHT) is a Pennsylvania-based healthcare REIT that owns and operates healthcare facilities such as acute care and rehabilitation hospitals, medical office buildings, free-standing emergency rooms and childcare centers. Universal Health Realty Trust has 71 properties across 20 states. About 60% of its properties are medical buildings and clinics.
For 36 consecutive years, Universal Health Realty Income Trust has paid quarterly dividends. The $2.84 annual dividend yields 5.6% and has been raised nine times since 2017, with no cuts.
Despite a year-over-year reduction in third-quarter FFO of $0.60 per share, the forward annual FFO of $3.57 still covers the dividend payout with room to spare.
Another positive is that the chairman of Universal Health Realty Income Trust recently purchased more shares. Given that, as well as the dividend history and coverage, stock investors can sleep peacefully knowing that this dividend could be safe even in a recession.
REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.
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