Real estate investment trusts (REITs) are designed to pass income on to investors in a tax-advantageous manner. But all REITs are not the same, not by a long shot. Those in search of a high yield will want to look at W. P. Carey(NYSE: WPC) in November. Dividend growth types should dig into Rexford Industrial Realty(NYSE: REXR). And for investors who think dividend reliability is king, then Federal Realty Investment Trust(NYSE: FRT) could be the right pick. Here’s a quick rundown of each of these attractive dividend-paying REITs.
There’s no way around this one, W. P. Carey cut its dividend at the start of 2024. That decision came about because the company chose to exit the office sector, which, prior to the exit, made up 16% of its rent roll. That’s just too much rent to lose without having to cut the dividend. However, the office sector is in a deep downturn and the decision was probably the right move for the REIT and shareholders over the long term. Still, investors weren’t pleased and W. P. Carey needs to earn back Wall Street’s trust.
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That’s a big part of the reason why the REIT is offering an attractive 6.3% dividend yield. It is important to recognize that the dividend got right back to the quarterly increase cadence that existed before the cut, which suggests that the cut was really just a reset. That makes sense when you consider the big picture here, which was a choice to exit just one of multiple property sectors. It still operates in the warehouse, industrial, and retail property types and in multiple geographic regions (predominantly the United States and Europe). If you are willing to give management the benefit of the doubt, you can collect a lofty yield from one of the most diversified REITs in the market. Given enough time, it seems likely that W. P. Carey will turn its business around and prove that this hard decision was a wise one.
The first thing investors need to know about Rexford Industrial is that it has increased its dividend at a huge 13.5% a year, annualized, over the past decade. The dividend yield isn’t exactly massive at 3.9%, but when you add in the dividend growth the REIT’s story will be very compelling for a select group of investors. Indeed, 13.5% growth is roughly 4 times the historical growth rate of inflation. This REIT has meaningfully grown the spending power of investor dividends over time.
There’s one caveat: Rexford is highly focused, as it owns industrial properties in just one geographic region, Southern California. That sounds high-risk and, in some ways, it is. But Southern California is one of the largest industrial markets in the world, is supply constrained, and still has huge demand because of its position as a gateway between Asia and the United States. But the really important figure is that Rexford estimates that it only owns about 3% or so of the property in this market. So it can benefit from rapidly rising rents and new investments in the region, both via acquisition and redevelopment. If you like dividend growth stocks, Rexford has a very compelling story to tell.
If you are in retirement and you are trying to live off of the dividends your portfolio throws off, perhaps dividend growth and turnaround stories aren’t your cup of tea. Dividend reliability might be paramount. That’s where Federal Realty comes in, as the REIT with the longest streak of annual dividend increases. The 57 consecutive dividend hikes here also makes Federal Realty a Dividend King. Sure the roughly 4% yield isn’t the highest you’ll find in the REIT sector, but if you prize dividend reliability over other factors this is the REIT for your portfolio.
Interestingly, Federal Realty has achieved this feat with an unusual business approach. It favors quality over quantity, with a portfolio that only has around 100 properties. That said, they are very well located and highly desirable properties. And the REIT has a long history of redevelopment and active portfolio management. So it is always looking to upgrade its business, which has, clearly, worked out well for investors over time. If you prefer to sleep well at night while you collect your dividend checks, Federal Realty could be a great addition to your portfolio today.
Far too often investors look at sectors, like REITs, as a generic grouping. That’s just not the case in most situations, with a variety of unique options waiting to be found if you are willing to dig below the surface. In the REIT space you can collect a high yield from a low-risk turnaround with W. P. Carey, harvest a hefty dividend growth rate from Rexford, or create a reliable income stream with Federal Realty. Any one of those options could make a great addition to a dividend portfolio in November.
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Reuben Gregg Brewer has positions in Federal Realty Investment Trust and W.P. Carey. The Motley Fool has positions in and recommends Rexford Industrial Realty. The Motley Fool has a disclosure policy.
