Income investors love their high-yielding dividends, but they’re not too happy when rough times force real estate investment trusts (REITs) to cut the dividends. Take a look at three REITs currently offering dividends of 10% or more and whether they can maintain these high yields in future quarters.
Sabra Health Care REIT Inc. SBRA is an Irvine, California-based healthcare REIT that specializes in skilled nursing, behavioral health and senior housing. Sabra Health Care owns 407 total facilities spread among 72 operators across the U.S.
The current dividend of $1.20 yields about 10% at a recent price of $11.98, but is this dividend sustainable? Several key aspects of Sabra Health Care REIT may be falling short.
In 2017, Sabra Health Care REIT paid a quarterly dividend of $0.45. For the next two years, it never raised its dividend. Then in May 2020, after the COVID-19 pandemic hit, the dividend was cut to $0.30. That’s understandable, but unlike many other REITs, Sabra Health Care REIT has not raised its dividend since then.
In addition, the ratio of the dividend to forward annual funds from operation (FFO) is now 80%. This high ratio is a red flag as it doesn’t leave much room for dividend coverage.
Another negative was that third-quarter operating results missed analysts’ expectations on revenue by 12% and FFO of $0.28 was less than the $0.30 paid out in dividends. If this is just a one-time event, Sabra Health Care REIT can handle it, but if this persists, it might be forced to cut the dividend to a level below its FFO.
Service Properties Trust SVC is a diversified REIT with a portfolio of 242 hotels and 766 service-focused net lease retail outlets that covers 46 states, Puerto Rico and Canada.
At its recent closing price of $7.63, Service Properties Trust’s annual dividend of $0.80 now yields 10.4%. However, its five-year dividend history has not been great. In 2020, Service Properties Trust cut its quarterly dividend from $0.54 to just $0.01. It remained that way until October 2022 when it was raised to $0.20.
Third-quarter earnings were markedly improved as normalized FFO of $0.54 doubled the $0.27 mark from the third quarter of 2021. Net income was a loss of $0.05 but well ahead of the loss of $0.36 from the third quarter of 2021.
The $1.44 forward FFO easily covers the new forward $0.80 dividend with a payout ratio of 55%.
Despite the lackluster dividend history, it would appear from the recent dividend reinstatement and improved third-quarter results that Service Properties Trust could be a good candidate to maintain its dividend going forward.
Brandywine Realty Trust BDN is a Philadelphia-based office REIT that owns, develops, leases and manages 175 properties totaling 24 million square feet from its Pennsylvania headquarters to Austin, Texas.
The 52-week range of Brandywine Realty Trust is $5.95 to $14.88, and like so many other REITs, its stock price has been decimated by higher interest rates this year. The share price is only about 8% higher since touching the lows in mid-October.
Brandywine Realty Trust’s quarterly dividend of $0.19 has been a stable but slow grower over the past five years and presently yields 11.7% annually. Even during the worst of the pandemic, it never cut nor eliminated the dividend. Its most recent quarterly dividend of $0.19 was paid on Oct. 20. The five-year dividend average is only 5.8%, so while Brandywine Realty Trust may be undervalued, the question is can it sustain its 11.7% dividend yield going forward?
Third-quarter 2022 FFO of $0.36 was a penny better than the third quarter of 2021. The price/FFO is currently at 4.74, and the dividend coverage by the forward annual dividend is only 55%. Both of these numbers suggest that while the company may be facing headwinds for a while longer, with its stable dividend and improving FFO, Brandywine Realty Trust should be able to maintain its dividend even with the current inflationary environment.
REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.
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