The growth in sales can often lead to an improvement in a company’s bottom line, which can ultimately lead to the introduction and increase of a dividend. For high-income investors, real estate investment trusts or REITs are attractive investment vehicles as they distribute at least 90% of taxable income to shareholders, often resulting in generous dividend yields.
We’re going to examine two REITs with high total revenue growth over the past five years that also pay a dividend yield of at least 4%.
Doctors Real Estate Trust
The Physicians Realty Trust, founded in 2013 (DOC, Financial) buys, develops and manages healthcare properties. The foundation’s real estate portfolio includes medical practices, surgical centers as well as diagnostic and outpatient treatment centers. The Physicians Realty Trust currently operates around 270 properties, is valued at $ 4 billion, and had sales of $ 438 million in 2020.
Physicians Realty Trust’s sales are up 25.4% over the past five years, one of the fastest growing rates in the healthcare REIT industry. This has resulted in strong growth in funds from operations per share since the trust was in existence. FFO per share has increased at an average annual growth rate of 18.5% since 2013. This excludes a number of shares that is currently 18 times the number of shares outstanding with which the trust began. Taking this into account, the FFO is 70 times higher than the 2013 result.
One area that worries some investors is that the Physicians Realty Trust has not increased its dividend since it was paid on July 18, 2017. The upcoming distribution on July 17th is the 17th payment in a row at 23 cents per share. The trust makes up for the lack of dividend growth by paying a 5% return, which is very good compared to the S&P 500 index’s average return of 1.3%. The current return is close to the average return of 5.2% since the trust was established.
Wall Street analysts expect Physicians Realty Trust to generate FFO of $ 1.09 per share in 2021. With an annualized dividend of 92 cents, the company has an expected payout ratio of 84%. This is an increased payout ratio, but not uncommon for REITs. The expected payout ratio is also below the Physicians Realty Trust’s average payout ratio of 95% since 2013.
Physicians Realty Trust closed the last trading session at $ 18.29, giving the stock a forward price to FFO ratio of 16.8. This is a discount to the 5-year average valuation of the stock of 17.5 times the FFO.
That is, Physicians Realty Trust appears before its intrinsic value, or GF value, as calculated by GuruFocus.
Physicians Realty Trust has a GF value of $ 16.14, which gives the stock a forward price-to-GF value ratio of 1.13. Stocks would fall 12% if they returned to GF value. GuruFocus gives the trust a slightly overrated rating.
Physicians Realty Trust operates in a fairly recession-proof area of the real estate sector. Health services are usually in demand even in recessive or difficult times. This is reflected in the trust’s revenue growth over the past five years. Though dividend growth has ceased in recent years, the stock offers great returns. Investors who don’t mind paying anything above the intrinsic value of the stock should continue to receive high returns from the Physicians Realty Trust.
VICI Properties Inc. (VICI, Financial) was founded in 2017 from the spin-off of Caesars Entertainment Inc. (CZR). The Trust operates 28 resort casinos and four golf resorts in 12 US states. VICI Properties’ major casino brands include Caesar’s, Bally’s and Harrah’s. The trust had sales of $ 1.2 billion last year and a market capitalization of $ 16.7 billion.
The REIT had a short life as a publicly traded company, but its revenue growth rate was nothing short of spectacular at 165.4%. Even the Covid-19 pandemic wasn’t a hindrance to the trust’s revenue growth. In fact, VICI Properties’ revenue increased year over year as well as sequentially for each quarter of 2020. This continued into the first quarter of the year. VICI Properties has set a new high for sales for six consecutive quarters.
Net results were a little less stable as the trust had FFO per share of $ 1.43, $ 1.24 and $ 1.64 for the past three years, resulting in a growth rate of only 4.7% over that period . As with the Physicians Realty Trust, an increase in the number of shares is the main reason for the uneven growth. Adjusted for this, the FFO has even grown by a CAGR of more than 19% in the last three years.
VICI Properties has increased its dividend every year of its existence and four times in total. The most recent increase was announced for the payout on September 8, 2020. If the trust is on its typical schedule, shareholders should see the next increase around the same time. The dividend has had a CAGR of nearly 8% since 2018. The share is currently yielding 4.3%, more than three times as high as the market index. However, that’s nearly a full percentage point below VICI Properties’ average return since inception.
The stocks have an annualized dividend of $ 1.32. Analysts expect the trust to earn $ 1.96 FFO per share this year, resulting in an expected payout ratio of 67%. This is at the lower end for most REITs and is well below the average payout ratio of 80% over three years.
This year FFO is expected to be $ 1.96 per share. With a share price of $ 31, VICI Properties has a forward price to FFO of 15.8. In context, the stock has a three-year average price-FFO ratio of just under 14.
Stocks also appear to trade at a premium on GF Value.
VICI Properties has a GF value of $ 27.62, resulting in a price-to-GF value of 1.12. A return to GF Value would mean a 10.9% decline in the share price. VICI Properties is rated as slightly overvalued.
VICI Properties is a very young trust, but it has done quite well as it has seen massive sales growth in a very short period of time. The trust has also shown excellent FFO growth and increased its dividend solidly. The fact that VICI Properties has hit new highs for several quarters, including all of last year during the worst pandemic, is a feather in the trust’s cap. Stocks trade at a slight premium to the historical average, and the GF value and dividend are also lower than usual. Nonetheless, VICI Properties operates in a niche area of the real estate industry and has proven since its spin-off that it is a well-run company. Investors looking for growth, income, and REIT diversity may be willing to pay a premium on the stock.