With the Federal Funds rate at zero and U.S. Treasury bonds near record lows, it can be hard as an income investor to find some sort of income without taking a lot risk. The desire for income is a huge reason why investors have historically been attracted to REITs. The reason is because the are pass-through entities that are required to pay out 90% of their taxable income as dividends.
When you consider that dividends are paid from the income or rather cash flows of a company, this has to be a consideration when choosing a REIT. In the current climate, it can be hard to determine whether or not the cash flow will be there to maintain the same dividend rate that the company is paying, let a lone actually growing the dividend every year. As a result, consideration for a REITs current level of cash flows, the payout ratio and the prospects of the business in the current environment have to be considerations Therefore, low leverage, stable business model and current yield are the primary considerations.
Check out our recent posts on REITs.
The following list of five REITs are investment opportunities that may provide stable income in the recessionary age of COVID-19.
COVID-19 REIT #1: Easterly Government Properties Inc (NYSE: DEA)
Easterly is a REIT that is based in Washington D.C. and specialized in Class A commercial properties that are leased to the U.S. government. This creates an ability of the company and its income stream to be more secure than your typical commercial property ETF, especially in the climate that we’re in.
The company currently pays a 4.56% dividend yield and kept the annualized dividend of $1.04 steady since the end of 2017. As of Q1 2020, the company has an AFFO payout ratio of 89.66%. The valuation for DEA is fairly high at this level as its price-to-AFFO ratio is near a 3-year high at 19.3. However, the consistency and the yield make it an opportunity for new investors in the company.
COVID-19 REIT #2: Public Storage (NYSE: PSA)
Public Storage owns and operates self-storage facilities in 38 states with over 170 million in rentable space. This is a play that worked well in the last recession and with over 8% of mortgages in forbearance, if a foreclosure cycle starts to pick up, the need for storage increases.
The company currently pays a 4.23% dividend yield and kept the annualized dividend of $2.00 steady since the end of 2016. As of Q1 2020, the company has an AFFO payout ratio of 55%, which shows an ability to see cash flows decrease and still pay the dividend. The valuation for PSA is at a 3-year low with a P/AFFO ratio of 12.15.
COVID-19 REIT #3: Corporate Office Properties Trust (NYSE: OFC)
Corporate Office Properties is an interesting company in that they acquire office and data center properties and then leases the properties to the U.S. government and government contractors. Their office properties are largely located in the Washington D.C. and Baltimore region.
The company currently pays a 4.46% dividend yield and kept the annualized dividend of $1.10 steady since 2015. As of Q1 2020, the company has an FFO payout ratio of 73.5%, which shows an ability to see cash flows decrease a little and still pay the dividend. The valuation for OFC is at a 3-year low with a P/FFO ratio of 17.9.
COVID-19 REIT #4: Caretrust REIT Inc (NASDAQ: CTRE)
Caretrust leases skilled nursing, senior housing and other healthcare facilities. While the healthcare industry in in turmoil with so many elective procedures being limited nationally and issues with COVID deaths in nursing homes, the demographics still favor continued growth in this space. Also, CTRE maintains some of the lowest leverage within healthcare REIT companies.
The company currently pays a 5.2% dividend yield and raised its dividend every year for the past 5 years. As of Q1 2020, the company has an FFO payout ratio of 77.5%, which shows an ability to see cash flows decrease a little and still pay the dividend. The valuation for CTRE is at a 3-year low with a P/FFO ratio of 14.18.