AvalonBay Communities (NYSE: AVB) and Public Storage (NYSE: PSA) have been moderately stingy lately. The true property funding trusts (REITs) final elevated their dividends fairly some time in the past. Nevertheless, each just lately boosted their payouts.
That dividend development is noteworthy given the historic outperformance of corporations that enhance their payouts. Based on information by Ned Davis Analysis and Hartford Funds, dividend growers and initiators have delivered a median annual return of 10.7% during the last 50 years. That has outpaced corporations with no change of their dividend coverage (7.1% common annual complete return) and the equal-weighted return of the S&P 500 (8.2%).
This is a have a look at their dividends and whether or not these corporations can proceed to push their payouts greater sooner or later.
Getting again to regular development
AvalonBay Communities just lately declared its first-quarter dividend. It is paying $1.65 per share, which is 3.8% above its prior dividend payment. That is the apartment REIT’s first dividend enhance for the reason that pandemic began:
AVB Dividend information by YCharts
As that chart exhibits, AvalonBay had beforehand been a gentle dividend development inventory. Nevertheless, the corporate stopped growing its payout in early 2020 because of the impression the pandemic had on condominium demand in high-cost coastal markets. That put strain on occupancy ranges, rental charges, and the REIT’s funds from operations (FFO).
Condo demand in main cities has began recovering. Final yr, AvalonBay reported a 13.2% enhance in its same-store internet working earnings (NOI), pushed by double-digit rental income development and powerful occupancy ranges. That helped energy a 18.5% leap in core FFO to $9.79 per share.
The REIT expects to proceed rising in 2023. It anticipates core FFO to extend by about 5% to $10.31 per share, pushed by continued same-store NOI development and the impression of growth initiatives. That may give the corporate loads of cash to cowl its greater annual dividend outlay of $6.60 per share.
Provided that conservative payout ratio, AvalonBay has room to extend the dividend. As well as, it at the moment has 17 growth communities underneath development that ought to present incremental NOI as they stabilize. Add within the prospect for continued same-store NOI development as rents rise, and AvalonBay ought to be capable of proceed elevating its dividend sooner or later.
A giant enhance
Public Storage is making up for misplaced time. The main self-storage REIT just lately declared its newest dividend at $3.00 per share, a whopping 50% above its earlier fee. It marked the corporate’s first dividend enhance since 2016.
Public Storage had chosen to maintain its payout flat to retain additional cash to take care of a top-tier steadiness sheet whereas executing its development technique. The REIT has spent $8 billion on acquisitions, developments, initiatives, and redevelopments for the reason that begin of 2019. These investments have expanded its portfolio by 26%.
These investments and above-average same-store NOI development have helped drive a major enhance in FFO. Public Storage’s core FFO per share jumped 25.3% by the primary 9 months of final yr to $11.77 per share. That is loads of cash to cowl its reset dividend, which might have value $9.00 per share.
Even with these investments, the REIT has maintained a robust steadiness sheet, giving it room to proceed increasing. It just lately provided to amass fellow self-storage REIT Life Storage in an $11 billion deal to supersize its growth prospects. It might additionally improve its capability to retain free money stream after paying the dividend to fund future growth-related investments.
With a robust steadiness sheet and conservative payout ratio even on the ramped-up price, Public Storage has the flexibleness to proceed elevating its dividend. In the meantime, its FFO ought to proceed growing because it makes use of its steadiness sheet capability to make acquisitions and spend money on growth and redevelopment initiatives.
The ability to supply greater returns
Traditionally, corporations that develop their dividends produce greater returns than people who hold their payouts static. In consequence, traders will not wish to miss the current raises issued by AvalonBay Communities and Public Storage. Whereas it is no assure they will outperform from right here, each corporations have the capability and development prospects to proceed growing their payouts. That makes them far more engaging to traders in search of to earn above-average complete returns.
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Matthew DiLallo has positions in AvalonBay Communities and Public Storage. The Motley Idiot recommends AvalonBay Communities and Life Storage. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
