I’ve got two smart dividend REITs to swing into now, with yields up to 8.4% and payouts that have surged up to 55% in the last five years, taking their share prices along for the ride, notes Brett Owens, editor of Contrarian Outlook.
Equinix (EQIX) is a dividend machine that has been unfairly swept up in the tech wreck. Profitable tech plays — especially those with healthy cash flow and soaring dividends — are a great pickup now, with many trading at bargain prices.
Equinix should be near the top of your list. The California-based REIT rents out 237 data centers across 27 countries. Its services will always be in need as firms lean hard into remote work, automation and analytics.
This stock is the opposite of a crypto gamble: Equinix’s revenue has risen for 77 straight quarters. It also has rate protection, with 94% of its debt locked in at fixed rates, with a blended rate of just 1.7% and a term to maturity of nine years.
The crypto crowd, of course, has missed all of this, which has hit Equinix’s share price and set up a nice entry point for income investors with an eye for value. The current yield isn’t that exciting, at 1.6%, but the REIT more than makes up for it with dividend growth: its payout is up 55% in the last five years, and that’s helped drive an 80% gain in the share price.
Meantime, Equinix’s payout is well-supported: the REIT is forecasting adjusted funds from operations (AFFO) of $28.93 to $29.26 for the full year, up 8% to 9% from 2021. The dividend accounts for just 42% of the midpoint of that range, so there’s plenty of room for more hikes.
Life Storage (LSI) is built for booms and busts. Buffalo-based Life is the opposite of Equinix in a lot of ways: instead of sophisticated data centers, Life runs one of the simplest businesses there is. It owns (wholly and through joint ventures) or manages 1,076 self-storage facilities across the country.
The self-storage industry’s low barriers to entry can weigh on profits, so LSI is an investment we need to keep an eye on. But right now that risk is being more than offset by the pandemic shopping boom — and consumers’ need to store their stuff. According to research firm ResearchandMarkets, self-storage is poised to grow 5.5% a year between 2021 and 2026, when it will be a $64-billion business.
Life is also executing smartly, expanding its footprint while raising rents: it ended the fourth quarter with a 93.9% occupancy rate and saw revenue per square foot jump 15.2% from a year earlier. That helped increase AFFO by 31.8%.
Besides renting space, Life makes money by managing storage facilities for other owners. This gives Life a leg up in the acquisition game because it regularly buys buildings from these owners, and by managing them first, it gains intimate knowledge of them.
On the dividend front, the company makes returning cash to shareholders a high priority, with FFO posting a compounded annualized growth rate of 9.9% between 2010 and 2021, just slightly outpacing the dividend’s 9.7% CAGR. With FFO on the march, we can expect this lucrative “cash flow handoff” to continue.
