SL Green Realty Corp. SLG recently announced rewards for its shareholders in the form of a 4.6% sequential hike in the quarterly dividend rate on common stock and OP units. In fact, the fourth quarter dividend of 85 cents is above the previously-announced figure of 81.25 cents. The new dividend will be paid on Jan 15, 2019, to shareholders of record as of Jan 2, 2019.
Based on the increased rate, the annual dividend stands at $3.40 per share, up from the prior annual rate of $3.25, leading to an annualized yield of 3.6%, considering SL Green’s closing price of $93.82 on Nov 29.
Can SL Green Maintain its Payout?
Management believes that the company is well poised to grow, with ample liquidity to fund its capital projects and accretive investment opportunities.
SL Green’s ability to sustain the hiked dividends depends on funds from operations (FFO) growth and payout ratio. The company’s current payout ratio is nearly 49%.
Additionally, the company’s performance depicts a robust FFO picture. In the past five years, the real estate investment trust (REIT) recorded FFO growth of 4.7%. Its FFO is projected to grow at a rate of 4.19% for the current year. The Zacks Consensus Estimate for 2018 FFO per share is $6.72.
The company remains committed to increase shareholder value through dividend hikes and share buyback. The company repurchased a total of 15.7 million shares under its share repurchase program, with the recent increase representing SL Green’s 8th consecutive year of common dividend hike.
However, poor fundamentals of the company might lead to dividend cuts. The amount of debt assumed by a company influences the dividend growth. Hence, SL Green’s high level of debt raises concerns over sustainability of the current dividend level. It is a decently leveraged company with a debt/equity ratio of 0.86 compared with the industry’s 0.87.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to. During the period, shares of SL Green have lost 3.8% against the industry’s rally of 3.4%.
We believe that such disbursements highlight the company’s operational strength and commitment toward rewarding its shareholders handsomely.
Lastly, as investors prefer an income-generating stock, solid dividend payouts are arguably the biggest enticement for REIT investors. Needless to say, investors are always on the lookout for companies with a track record of consistent and incremental dividend payments to put their money on.
Some better-ranked stocks in the REIT space include OUTFRONT Media Inc. OUT, PS Business Parks, Inc. PSB and Terreno Realty Corporation TRNO. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
OUTFRONT Media’s FFO per share estimates for 2018 have been marginally revised upward to $2.09 in the past 30 days. Its shares have rallied 17.6% over the past 30 days.
PS Business Parks’ Zacks Consensus Estimate for 2018 FFO per share has moved up 0.9% to $6.45 in the past month. Its shares have increased 6.2% over the past month.
Terreno Realty’s FFO per share estimates for 2018 have been revised marginally north to $1.33 in seven days’ time. Its shares have returned 4.4% over the past month.
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