Even though defensive dividend sectors have had a solid 2019, the bottom line for income investors is that rates are going nowhere. With $17 trillion of foreign sovereign debt yielding less than zero, U.S. rates could continue to get knocked down as investors from around the globe seek to buy our corporate and government debt.
So like this year, for 2020, investors will be forced to look to the equity markets, and specifically the utilities and real estate investment trusts (REITs) for solid and dependable yields. A new Goldman Sachs research report, which actually follows up on REIT coverage from earlier this year, makes the case that 2020 should be another solid year for the sector, with certain areas being perhaps more timely now. The report noted:
Our models currently do not anticipate dividend cuts. However: 1) pressure is mounting for companies where leverage metrics are approaching debt covenant limits, and 2) a high payout is reflexive, as less retained cash makes it more difficult to grow earnings.
We screened the Goldman Sachs REIT coverage universe looking for companies rated Buy and found four that still make good sense for accounts looking for reliable and reasonably safe dividends.
This is among the highest-yielding REITs in the group, and it offers a solid total return proposition for investors. Brixmor Property Group Inc. (NYSE: BRX) is an internally managed REIT that owns and operates the largest wholly owned U.S. shopping center portfolio. Brixmor owns 522 community and neighborhood centers, totaling 86.7 million square feet, in 38 states.
The largest real estate concentrations by state are Texas (11%), Florida (10%) and Pennsylvania (7%). The portfolio is primarily the aggregate of Centro Properties Group United States acquisitions from 2005 to 2007. Centro Properties Group was an Australian-based company with two primary investment arms.
Investors receive an outstanding 5.48% dividend. Goldman Sachs has a $23 price objective on the shares, and the Wall Street consensus target is $20.11. The shares traded on Wednesday at $20.50.
This triple net lease REIT is a solid addition to conservative portfolios. Essential Properties Realty Trust Inc. (NYSE: EPRT) is an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to companies operating service-oriented or experience-based businesses.
As of March 31, 2019, the company had a portfolio of 711 properties with a weighted average remaining lease term of 14.5 years and a weighted average rent coverage ratio of 2.8 times. As of the same date, the company’s portfolio was 99.9% leased to 172 tenants operating 197 different concepts in 16 distinct industries across 44 states.
Shareholders receive a 3.55% distribution. The Goldman Sachs price objective is $25, above the $23.48 consensus figure. The shares were trading at $24.35 apiece.
Simon Property Group Inc. (NYSE: SPG) invests in real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.
Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.
One key driver of growth will include the over $1.0 billion in development/redevelopment planned over the next few years. Most on Wall Street feel that the company’s high-quality portfolio will continue to weather the retail storms better than most.
Simon Property offers shareholders a 5.62% distribution. The $192 Goldman Sachs price target compares with a $178.11 posted consensus target. Shares trade at $146.00 on Wednesday.
This solid real estate play could hold some very large total return upside. VEREIT Inc. (NYSE: VER) company owns 4,291 properties located in 49 states, as well as the District of Columbia, Puerto Rico and Canada.
The company owns retail, office and industrial assets. In addition to its owned portfolio, the company manages $7.0 billion of gross real estate investments on behalf of the Cole Capital non-listed REITs.
Investors receive a 5.57% dividend. The Goldman Sachs price target is $11. The consensus target is $10.13, and shares were changing hands at $9.90.
The bottom line is that the stock market remains in very volatile waters, and the likelihood for a deal with China seems to be ebbing ever farther from completion on any given day. With rates going lower, income starved investors should continue to move to these top companies.