Dividend stocks can be very enriching investments. Over the past 50 years, dividend payers have outperformed non-payers by more than 2-to-1, with a 9.2% average annual total return, according to data from Ned Davis Research and Hartford Funds, versus 4.3% for non-payers. Meanwhile, dividend growers have produced the highest returns among dividend stocks, at 10.2%.
A 10% annual total returnreally adds up over the long term. Investors could double their money about every seven years at that rate.
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One dividend stock that stands out for its high total return potential is EPR Properties(NYSE: EPR), which could be a very enriching investment in the coming years.
EPR Properties is a real estate investment trust (REIT) focused on owning experiential properties, such as movie theaters, eat-and-play venues, and attractions. The company owns 352 locations leased to more than 200 tenants that operate those experiences. Those tenants pay rent, which provides EPR with relatively predictable income.
The REIT expects to generate between $4.80 and $4.92 per share of funds from operations (FFO) as adjusted this year. It currently pays a monthly dividend of $0.285 per share, or $3.42 annually, giving it a reasonable dividend payout ratio of around 70%. That gives it a nice cushion while enabling it to retain a decent amount of cash flow to fund new investments.
At its current stock price, EPR Properties’ dividend yields 7.5%. That’s significantly above average. The S&P 500‘s dividend yield is less than 1.5%. Put another way, every $1,000 invested in the REIT would produce about $75 of dividend income each year compared to less than $15 for a similar investment in an S&P 500 index fund.
EPR Properties has invested over $6.9 billion to build its real estate portfolio over the years. That’s just a fraction of its market opportunity. It sees more than a $100 billion addressable market to acquire and develop experiential real estate in the future. It targets several types of properties, including eat and play, gaming, experiential lodging, ski, attractions, cultural, live venues, and fitness and wellness properties.
The REIT has invested $214.6 million into experiential properties this year. It acquired one attraction property for $33.4 million, made $89.6 million of financing investments, and spent the rest on development, redevelopment, and joint venture projects. EPR Properties expects its investment spending to be between $225 million and $275 million for the full year. It has already committed to invest $150 million over the next two years into experiential development and redevelopment projects.
Those new investments should enable the REIT to grow its cash flow and dividends. It’s on track to increase its FFO as adjusted by 3.2% per share this year. Meanwhile, it has already raised its dividend by 3.6% per share this year.
EPR Properties believes it can comfortably grow its FFO as adjusted by around a 3% to 4% annual rate, which could enable it to increase its dividend at a similar pace. Supporting that growth is its large investment opportunity set and financial flexibility. In addition to its post-dividend free cash flow, EPR Properties has ample liquidity. The REIT ended the third quarter with $35.3 million in cash and only $169 million outstanding on its $1 billion credit facility.
On top of those funding sources, the REIT can continue to recycle capital. It has sold $65.1 million of properties this year at a $16 million gain, including several vacant theaters. It’s targeting to sell $70 million to $100 million of non-core properties this year. The REIT also has a small educational portfolio, with 60 early childhood education centers and nine private schools, which it could sell in the future to help fund accretive new investments.
EPR Properties’ combination of a high dividend yield and modest earnings growth rate can really add up to a strong total return. CEO Greg Silvers highlighted this on the REIT’s third-quarter earnings conference call. He stated: “We can still comfortably grow in that 3% to 4% range with what we’re doing. And combine that with our dividend, it’s still what we think a very attractive double-digit kind of total shareholder return.” An investment in EPR Properties could be your ticket to a much richer future.
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