Chambers Street Properties
is a real estate investment trust, or REIT, that owns and
operates industrial and office properties. The company leases
properties to a diverse group of high-quality tenants, with the
main goal of providing a steady, predictable stream of monthly
income to shareholders.
Chambers Street currently pays out an annual dividend yield of
about 6.3%, which is a pretty attractive income stream. Is the
company a good choice for income investors? And could the REIT
also be a good fit for investors seeking long-term growth?
Diverse tenants and predictable rental income mean
On average, Chambers Street Properties' 15 largest tenants each
account for less than 3% of the company's rental income. Not only
does Chambers Street have a diverse group of tenants, but the
overall quality of those tenants is excellent.
Among the company's major tenants are household names such as
, to name just a few. More than half of the tenants have an
investment-grade credit rating, and under 10% have less than an
investment-grade credit rating. The rest aren't rated, which is
fairly common among smaller and nonpublic companies.
The company's tenants represent 24 different industries, with
the largest (financial services) representing 13.2% of Chambers
Street's rental income.
Source: company investor presentation.
The portfolio is also geographically diverse, with properties
in many major U.S. metropolitan areas, as well as in the United
Kingdom, France, and Germany. Other than the New Jersey/New York
City metro area, which encompasses about 15% of the company's
properties, no other market has more than 9% of the total.
Source: company investor presentation.
Most of the tenants are on triple-net leases, which means the
rental income is much more predictable than it would be with,
say, residential properties. Under these leases, which generally
last for 10 years or so, tenants are responsible for all property
taxes, insurance costs, and maintenance on the property. So all
Chambers Street really has to do is find a tenant and collect the
Why do we care about monthly dividends?
Obviously, monthly dividends are desirable for investors who rely
on their stocks for income to cover their living expenses. It's
nice to get a "paycheck" every month, as opposed to every three
However, many growth investors don't realize that monthly
dividends can actually increase the effect of compounded gains
over time by producing higher investment returns from the same
exact dividend. Simply put, the more often your returns are
compounded, the faster your money will grow.
Let's look at how this could affect Chambers Street
Properties' investors.Chambers Street's exact dividend yield is
6.32%. If the company decided to make quarterly dividend
payments, the effective annualized yield (the rate your
investment compounds over time) would be about 6.47%.
However, since the company pays out monthly, it raises this
rate slightly to 6.51%. While this might not sound like much, it
can make a substantial difference over time. A $10,000 initial
investment compounded over 30 years could mean an extra $1,800 in
returns, assuming the stock price appreciates by 3% each
Not only does a monthly dividend mean more frequent income for
those who need it, but it also gives your long-term performance a
nice little boost.
Is it a buy?
I believe it is. The company makes more than enough money to
cover its dividend, and I think there could be substantial
increases in the future.
REITs support their dividend using funds from operations,
which for Chambers Street were $0.17 per share for the most
recent quarter, far above the $0.126 the company paid out. Bear
in mind that REITs have to distribute at least 90% of their
income to shareholders, so if this keeps up, the company will be
sitting on an excess of cash.
That's exactly what analysts expect to happen. The company is
projeccted to earn $0.68 per share in 2014 and $0.70 per share in
2015. A quick calculation shows that 90% of these amounts is
about $0.61 and $0.63, respectively. So we could easily see a
nice dividend raise considering the rate at which Chambers Street
is making money.
If you have a positive outlook for commercial real estate and
rental prices in coming years, Chambers Street might be worthy of
consideration, especially if having a steady, growing income
stream is important to you.
for the next decade
The reason we're featuring dividend stocks like Chambers Street
is that they simply crush their nondividend-paying counterparts
over the long term. We also know that a well-constructed
dividend portfolio creates wealth steadily, while still
allowing you to sleep like a baby. Knowing how valuable such a
portfolio might be, our top analysts put together a report
on a group of high-yielding stocks that should be in any
income investor's portfolio. To see our free report on these
Stocks With Monthly Dividends: Chambers Street
originally appeared on Fool.com.
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