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Is EastGroup Properties' (EGP) 5.3% Dividend Hike Sustainable?

EastGroup PropertiesEGP board of directors recently approved a 5.3% increase in the company’s quarterly dividend to 79 cents per share from 75 cents.

The company will pay the raised dividend on Oct 15, to shareholders on record as of Sep 30, 2020. Further, based on the increased rate, the annual dividend comes to $3.16 per share, up from the prior annual rate of $3 per share, leading to an annualized yield of 2.3%, considering EastGroup’s closing price of $135.45 on Aug 27.

Solid dividend payouts remain the biggest enticement for REIT investors and EastGroup remains committed toward boosting shareholder wealth through these dividend hikes.

EastGroup has hiked its dividend payouts, in each of the last nine years, the recent one marking the company’s 163rd consecutive quarterly distribution to shareholders. Further, EastGroup has increased or maintained its dividend for 28 consecutive years.

Can EastGroup Maintain its Payout?

EastGroup’s ability to sustain the hiked dividends depends on its funds from operations (FFO) growth and payout ratio. The company’s current payout ratio is nearly 56%.

Additionally, its performance paints an impressive FFO picture. Over the next five years, the company’s FFO is projected to grow at a rate of 4.9%. The favorable estimate revision for the ongoing year reflects an upbeat outlook for the company, having moved 2.7% north over the past month to $5.31, indicating 6.6% year-over-year growth.

Moreover, EastGroup has an investment-grade balance sheet and enjoys a favorable credit rating of Baa2 from Moody’s. The company’s well-leased industrial portfolio enjoys a solid presence in the Sunbelt region, which, in turn supports the credit rating. Its current cash flow growth of 25.62% is well ahead of the industry average of 3.36%.

Furthermore, EastGroup’s focus on value-additive acquisitions and strategic developments will likely be conducive to its bottom-line expansion, thus, enabling the company to sustain the hiked dividends.

Bottom Line

The industrial asset category is showing resilience amid the coronavirus pandemic with low vacancy rates, high asking rents and robust rent collections. There has been a notable increase in e-commerce’s share of total retail sales, spurring demand for warehouse and distribution space. Also, apart from the fast adoption of e-commerce, the industrial real estate space is anticipated to benefit over the long run from a likely increase in inventory levels by companies as a precaution for any supply-chain disruptions.

This, in turn, will likely keep supporting the industrial landlords like EastGroup Properties, Prologis, Inc. PLD, Duke Realty Corp. DRE, and Terreno Realty Corporation TRNO, among others, to enjoy a favorable market environment.

Particularly for EastGroup, we believe such disbursements highlight the company’s operational strength and commitment toward rewarding its shareholders handsomely. The latest hike reflects the company’s ability to generate solid cash flow growth through its operating platform and high-quality portfolio.

Lastly, as investors prefer an income-generating stock, solid dividend payouts are the biggest enticement for REIT investors. Investors are always on the lookout for companies with a track record of consistent and incremental dividend payments to put their money on.

Shares of this Zacks Rank #3 (Hold) company have rallied 16.5%, outperforming the industry’s growth of 4.7% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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