Ushering in good news for its shareholders, Vornado Realty Trust VNO announced a 4.8% hike of the company’s quarterly dividend on common shares. Specifically, the company hiked its dividend rate to 66 cents from 63 cents paid earlier. The raised dividend is scheduled to be paid on Feb 14, to shareholders on record as of Jan 28, 2019.
Based on the new rate, the annualized dividend rate comes to $2.64 per share, up from the prior annual rate of $2.52 per share. This indicates an annualized yield of 4.05%, considering Vornado’s closing price of $65.17 on Jan 16.
Can Vornado Realty Maintain its Payout?
Vornado Realty’s ability to sustain the hiked dividends depends on its funds from operations (FFO) growth and payout ratio. The company’s current payout ratio is nearly 63%.
Additionally, the company depicts a robust FFO picture. Its FFO is projected to grow at a rate of 6.92% for full-year 2019. The Zacks Consensus Estimate for 2019 FFO per share is $4.09.
Notably, Vornado boasts a strong liquidity position of $3.5 billion, along with well-laddered debt maturities. Additionally, in November 2018, it extended a $205-million unsecured term loan from 2020 to 2024, lowering the interest rate on the loan to LIBOR plus 1.88%. These prudent financial moves will offer Vornado a cheaper line of credit and help reduce its annualized interest expenses as well.
Furthermore, leveraging on the lucrative pricing environment, the company has been pursuing strategic asset sell-outs. This provides it with the dry powder to reinvest in opportunistic acquisitions. In fact, Vornado recorded nearly $141 million in net gains from its disposition activities during the Sep-end quarter.
However, poor fundamentals of the company might lead to dividend cuts. The amount of debt assumed by a company influences dividend growth. Hence, Vornado’s high level of debt raises concerns over sustainability of the current dividend level. It is a highly-leveraged company with a debt/equity ratio of 2.36 compared with the industry’s average of 0.88.
We believe such disbursements highlight the company’s operational strength and commitment toward rewarding its shareholders handsomely. The hike reflects the company’s ability to generate solid cash flow growth through its operating platform and high-quality portfolio.
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.
Shares of this Zacks Rank #3 (Hold) company have declined 4.3%, underperforming the industry’s gain of 2.3% over the past three months.
Stocks to Consider
Terreno Realty Corporation TRNO carries a Zacks Rank of 2 (Buy), at present. The company’s funds from operation (FFO) per share estimates for 2018 remained unrevised at $1.32, over the past month. Its shares have rallied 4.9% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
OUTFRONT Media Inc. OUT carries a Zacks Rank of 2, currently. The company’s FFO per share estimates for 2018 remained unchanged at $2.09 in a month’s time. Its shares have appreciated 11.1% over the past month.
Extra Space Storage Inc EXR also carries a Zacks Rank of 2. The company’s FFO per share estimates for 2018 remained unchanged at $4.64, in a month’s time. Its shares have gained 6.5% over the past three months.
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