Real Estate Investment Trusts (REITs) tend to offer lucrative dividends but it is often wise to check their earnings outlook to ensure they can sustain their lofty yields.
Gauging REITs with strengthening prospects is also critical in the selection of those that may be able to have strong price performances in addition to providing income in the portfolio, thus boosting investors' total returns.
With that being said, here are two companies with income-producing real estate assets that investors may want to own at the moment.
Alexander’s ALX
Flaunting a Zacks Rank #1 (Strong Buy) we’ll start with Alexander’s, which leases, manages, and redevelops properties primarily in New York City that include shopping centers and apartment towers in Queens and Manhattan.
Alexander’s currently has a whopping 9.46% annual dividend yield that towers over the S&P 500’s 1.41% and even the Zacks REIT and Equity Trust-Other Markets’ 4.08%.
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Earnings Estimate Revisions
More intriguing is that Alexander’s earnings outlook has drastically improved over the last 60 days with FY23 EPS estimates climbing 19% from $14.04 a share to $16.77 per share. Even better, FY24 EPS estimates have jumped 13% in the last two months.
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Compelling Metrics
Price to Earnings Valuation: Alexander’s strengthening outlook makes its 11.3X forward earnings multiple look more attractive trading at a discount to the industry average of 15.2X and well below the S&P 500’s 21.7X.
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Price to Cash Flow Valuation: In terms of price to cash flow, Alexander’s P/CF of 10.7X is nicely beneath the optimum level of less than 20X, the S&P 500’s 16.7X, and its industry average of 13.8X.
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Return on Equity: With real estate assets in perhaps the most thriving city in the world, Alexander’s has also made good use of its equity and the return generated on it with an ROE of 40.74% over the last 12 months compared to its industry average of 5.27% and the S&P 500 at 25.68%.
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Innovative Industrial Properties IIPR
Sporting a Zacks Rank #2 (Buy) Innovative Industrial Properties is a REIT focused on the acquisition, ownership, and management of specialized industrial properties leased to experienced, state-licensed operators for medical use in regulated cannabis facilities.
Innovative Industrial Properties currently has an 8.19% annual dividend yield that has increased 12 times in the last five years and easily trumps the Zacks REIT and Equity Trust-Other Markets’ 4.08% and the benchmark.
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Earnings Estimate Revisions: Earnings estimate revisions have also remained higher for Innovative Industrial Properties over the last two months making the company’s steady but slower growth more appealing. Notably, annual earnings are now projected to be up 7% this year and rise another 1% in FY24 to $9.16 per share.
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Compelling Metrics
Price to Earnings Valuation: With rising earnings estimates also offering further support to its P/E valuation, Innovative Industrial Properties trades at just 9.6X forward earnings which is a 36% discount to the Zacks REIT and Equity Trust-Other industry average and well below the benchmark.
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Price to Cash Flow Valuation: Innovative Industrial Properties' P/CF of 10.1X is reassuringly below the industry average of 13.8X and the S&P 500 as well.
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Total Debt/Capital: Another metric that stands out for Industrial Properties is its total debt to capital percentage of 13% which is impressively lower than the optimum level of 40% and illustrates the company should be able to sustain its lofty dividend.
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Bottom Line
Alexander’s and Innovative Industrial Properties have robust bottom lines, and rising earnings estimates are even more promising that these REITs could have more upside ahead. Key financial metrics are starting to support this as well and now looks like an ideal time to buy with their dividend yields above 5% at the moment.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
