journalfront

Stocks

3 REITs for a Lifetime of Stable Dividend Income

2024-12-08

Many investors seek dividends that offer more than just a short-term gain. The durability of dividends is a crucial factor, influenced by a company's financial strength and business model resilience. In this article, we explore three real estate investment trusts (REITs) - Agree Realty, Stag Industrial, and Sun Communities - that possess these durable traits and are ideal for those seeking enduring income.

Discover REITs with Enduring Dividend Power

Agree Realty: A Model of Consistency

Over the years, Agree Realty has stood out for its remarkable consistency. With a solid 5.7% annual growth rate in dividends during the past 10 years, it offers a current yield of over 4%, significantly higher than the S&P 500's 1.2% yield. The company has built a strong foundation by focusing on owning freestanding properties leased to high-quality retailers. These retailers, accounting for 67.5% with investment-grade credit, are in resilient sectors such as grocery, home improvement, tire and auto service, and convenience stores. Utilizing long-term net leases or ground leases ensures predictable rental income as tenants cover all operating costs. Agree Realty also has an excellent investment-grade credit rating backed by a low leverage ratio, providing financial flexibility to continue acquiring income-generating retail properties. Its conservative dividend payout ratio of 73% of adjusted funds from operations (FFO) further strengthens its position. With a long growth runway ahead, as it works directly with many high-quality retailers owning over 168,000 locations, it is set to generate a steady stream of sale-leaseback transactions in the coming years.

Stag Industrial: A Steady Performer

Stag Industrial has been highly consistent over the years. Since going public in 2011, it has increased its dividend every year and offers a dividend yield above 4%. The company owns a diversified portfolio of industrial real estate, including warehouses and light manufacturing facilities. Leasing these properties to high-quality tenants under long-term agreements with annual rent escalations (averaging 2.8% in 2024) benefits from robust demand due to the growing adoption of e-commerce and onshoring of manufacturing. As a result, it captures much higher rental rates once legacy leases expire, with 30% rental increases on new and renewal leases for the same space in 2024. Stag Industrial also has a low-leverage balance sheet and a conservative dividend payout ratio of 73%. On track to generate about $100 million in post-dividend free cash flow this year, it has additional cash to invest in acquiring more income-producing industrial properties. With a planned acquisition of $500 million to $700 million of properties this year and a $4.2 billion deal pipeline, it is well-positioned for growth.

Sun Communities: A Unique Residential REIT

Sun Communities has a remarkable track record of never cutting or suspending its dividend in three decades as a public company. It has routinely increased payments over the years, including eight consecutive increases. Focusing on properties off the beaten path from other real estate investors, such as manufactured home communities, RV resorts, marinas, and holiday parks in the U.K., these properties benefit from very durable demand. For instance, the high cost of relocating a manufactured home keeps residents in place. Meanwhile, the growing demand for outside experiences is driving demand for space at its RV parks and marinas. As a result, Sun Communities has delivered 20 straight years of rising same-store net operating income (NOI), with an overall 5.2% compound annual rate increase since 2000, faster than the REIT sector average of 3.2%. By making acquisitions and investing in expanding existing locations, such as adding marinas and U.K. holiday parks to its portfolio, and having ample financial flexibility thanks to its solid investment-grade balance sheet, it is well-equipped to continue expanding its portfolio.Three rock-solid dividend stocks - Agree Realty, Stag Industrial, and Sun Communities - have long histories of paying durable and growing dividends. Backed by resilient real estate portfolios and strong balance sheets, they are likely to continue providing their investors with steadily rising income in the decades ahead.Matt DiLallo has positions in Stag Industrial and Sun Communities. The Motley Fool recommends Stag Industrial and Sun Communities. The Motley Fool has a disclosure policy.

As 2025 approaches, it becomes an opportune moment to assess our financial path in 2024 and envision where we aim to be in the coming years. This reflection not only encompasses hopes and dreams but also the crucial task of identifying mistakes to avoid, ensuring we stay on course to achieve our financial planning goals.

Navigating the Financial Landscape for a Brighter Future

The Pitfalls of Sector Rotations

In 2022, several mega cap growth stocks faced significant setbacks due to valuation concerns, inflation, and slowing growth. Take Apple, Microsoft, Alphabet, Amazon, Tesla, Nvidia, and Meta Platforms. At the end of 2022, their combined market capitalization was $6.9 trillion. However, just less than two years later, it surged to $17.6 trillion. Investors who panicked and sold out of these growth stocks missed out on a remarkable rally.Another notable example is during the 2020 downturn when oil and gas stocks were sold off. Over the last four years, the energy sector has witnessed an impressive 129% growth. Similarly, in 2023, after the banking crisis that led to the failure of some small to mid-size banks, many sold out of the financial sector. Yet, so far this year, financials have emerged as the best-performing sector, outperforming tech and many growth-focused ETFs. The key lesson here is that markets move in cycles, and quality companies with earnings growth tend to prevail in the long run.

Managing Momentum

Based on the previous point, it's important to avoid overhauling our investment strategy based solely on short-term momentum. For instance, if one is unfamiliar with cryptocurrency, buying Bitcoin just because it has surged in a short period is a bad idea. But if proper research indicates a long-term interest in Bitcoin, that's a different story.Another example is blindly piling into hot tech stocks without conducting research. However, there are valid reasons to invest in artificial intelligence themes. For example, Nvidia's ability to fend off competition and maintain ultra-high margins is highly encouraging. Similarly, enterprise software companies like Salesforce, which had been lagging, are now successfully monetizing AI and reaching new highs. The AI-driven rally is largely driven by existing earnings growth rather than potential growth. Therefore, it's crucial to take the time to research the industry and identify the companies with the most conviction and the willingness to hold through volatile periods.

Be Proactive, Not Reactive

Each year brings new expectations, challenges, and fears. It's easy to get swayed by factors that seem prominent in the moment and develop recency bias. While being aware of these factors and their impact on our investments is essential, overreacting to them can be a major mistake.For instance, the new administration will bring policy changes that will likely affect corporate taxes, trade policy, energy policy, and renewable energy tax credits. Currently, there is an abundance of media speculating about what the new administration will do, and this speculation can lead to highly volatile price movements in various assets. Making significant changes to our portfolio based on short-term guesses is not a wise decision. Instead, we should focus on the companies we have invested in and ensure they can perform well regardless of the administration in charge. In other words, do they have the resilience to endure challenges and even gain market share during an industry-wide downturn? Or could their finances be at risk? And if so, is that risk already reflected in the price and something we are willing to accept?

Mistakes Happen All the Time

Every investor makes mistakes. As we progress on our investment journey, it's likely that we will accumulate our fair share of regrets. However, by taking a deep breath and identifying potential mistakes in advance, we can prevent them from occurring.Now is the perfect time to assess our investment tendencies and address any areas where we may be prone to making errors. By doing so, we can better align our investments with our financial goals and navigate the complex world of finance with more confidence.

When chipmaker Nvidia announces its partnerships in the realm of artificial intelligence (AI), it often holds significant implications for investors. With a significant portion of servers built for AI relying on Nvidia GPUs, the company possesses extensive insights into the computing space. During Nvidia's Q3 conference call, one particular partnership came to the forefront - with Accenture, the largest tech consulting firm globally.

Accenture's Army of AI Experts

Nvidia's CFO, Colette Kress, highlighted during the conference call that Accenture had established a new unit comprising 30,000 employees trained on Nvidia's AI technology. This positions Accenture as one of the most well-prepared companies to offer AI expertise to clients who may lack in-house capabilities. While tech giants like Alphabet and Microsoft have extensive teams dedicated to this technology, many other sectors such as banking, industrial, and oil are less likely to have such internal resources. Hence, they turn to consulting firms like Accenture.Accenture's CEO, Julie Sweet, emphasized the significance of generative AI in every industry. She stated, "In every industry, there is a challenge or opportunity that GenAI can now uniquely solve. Our deep understanding of both the industry and the technology positions us to be the best at creating real value from GenAI with our clients." This perfectly encapsulates Accenture's AI-related investment thesis, as it is set to benefit from the mainstream adoption of generative AI in the coming years. However, it is a vast consulting firm with multiple areas of specialization and expertise and is not solely an AI-focused entity.

The Impact on Business and Investments

In its fiscal 2024 fourth quarter ending on August 31, Accenture witnessed new bookings of $20.1 billion, with generative AI contributing $1 billion. While generative AI has clearly provided a boost to the business, it only accounted for 5% of the total bookings, making it a relatively minor aspect of the overall investment picture. Fiscal 2024 was not the most prosperous year for Accenture as clients were cautious with their spending. Revenue increased by just 3% in the fourth quarter and only 1% for the entire year. The outlook for fiscal 2025 is slightly more optimistic, with management expecting revenue to grow by 3% to 6% in local currencies. Given that many AI companies are experiencing much faster revenue growth, the question arises: Is Accenture a worthy investment?From a forward price-to-earnings perspective, Accenture's stock appears quite expensive. Shares are trading at around 28 times forward earnings, similar to Meta Platforms and Taiwan Semiconductor, which are growing at a much faster rate. So, what makes Accenture a better stock pick?One advantage for investors is Accenture's generous shareholder capital return program. It increased its dividend by 15% in the fourth quarter, and at the current share price, it offers a yield of about 1.6%. Additionally, it repurchases a significant amount of stock - $4.5 billion worth last year alone. Reducing the outstanding share count enhances its earnings per share, which are expected to increase between 5% and 8% in fiscal 2025.However, even with the dividend and stock buyback program, Accenture's stock seems a bit overvalued for my taste, especially when there are other AI companies growing at a much faster pace and trading at similar or lower valuations. Therefore, I am currently inclined to avoid investing in it.