One source of allure with the real estate sector is its reputation for delivering above-average payouts. Knowing that is only part of the equation for income investors.
In order for a company to attain the tax treatment afforded to REITs, it must pay out a massive percentage of its earnings in the form of dividends. However, that doesn’t imply all landlords are on equal dividend footing. Investors can tilt the odds of success in their favor by embracing active management via the ALPS Active REIT ETF (REIT ).
To the credit of the ALPS ETF, it’s home to the “Elite Eight” of REIT dividend payers. These eight were identified in a recent report by Jefferies analyst Jonathan Petersen. The March Madness colloquialism is apt. Some of the names highlighted by Petersen, including those residing in this ETF, have storied dividend track records.
REIT Has the Dividend Goods
Among the REIT holdings featured in Petersen’s Elite Eight are CubeSmart (CUBE), Gaming and Leisure Properties (GLPI) and VICI Properties (VICI). The latter two are the largest publicly traded owners of casino real estate in the U.S.
The Jefferies analyst emphasizes the importance of focusing on quality when selecting REITs for income. As an actively managed ETF, REIT can more readily lean into that concept than index-based rivals, potentially avoiding dividend offenders along the way.
“Among the 72 public REITs that have existed for >15 years, only 28 have maintained their dividends, delivering a total return CAGR of +14% over the past 15 years, or ~964 bps higher than REITs that cut their dividends over that time frame. We believe that the key to selecting REITs that will deliver these returns over the next 15 years boils down to the quality and durability of the current dividend,” according to the analyst.
Additionally of note to investors is that REIT is home to several of Petersen’s “hall of famers,” including CubeSmart, Gaming and Leisure, Simon Property Group (SPG), Realty Income (O) and office REIT BXP (BXP).
Yield shouldn’t be the point emphasis, but durability and quality should be.
“When searching for the best income potential through REIT dividends, focusing solely on yield can be misleading, as it overlooks REITs with higher-quality dividends, solid cash flow coverage, and growth potential,” added Petersen. “Furthermore, a large dividend yield can sometimes signal that a dividend cut is forthcoming. We look for sustainable high yields with long-term growth potential. In evaluating the components of each REIT’s dividend, we find that the means to the end are as important as the end itself.”
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