Investing in dividend-paying stocks can be a great way to generate more income. High-quality dividend stocks offer durable income streams that steadily rise.
Stag Industrial(NYSE: STAG), Tanger Factory Outlet(NYSE: SKT), and EPR Properties(NYSE: EPR) stand out to a few Fool.com contributors for their dividends. Here's why they think these dividend stocks are ideal investments for income-seeking investors this August.
This REIT keeps industriously churning out the passive income
Marc Rapport (Stag Industrial): Stag Industrial is a strong competitor in the thriving industrial real estate business, a sector that continues to benefit from demand for warehouses and distribution centers that serve as key nodes in the global e-commerce supply chain.
Stag itself is a real estate investment trust (REIT), one of 11 categorized as industrial REITs by the Nareit trade group. They've provided an average of 9.25% in total return year to date and a 3% yield, but Stag is ahead of the pack at 14% in total return so far this year and a current yield of 4%.
Stag went public in April 2011 with a portfolio of 91 properties comprising 13.9 million rentable square feet in 26 states. Since then it's grown to 111 million square feet in 558 buildings in 41 states. The company also has grown its record as a solid producer of passive income.
After five straight years of increases, Stag now pays $0.1225 per month, a level that it can comfortably sustain with a cash flow ratio of about 57% based on the steady cash flow it gets from a tenant list led by Amazon. The e-commerce giant accounts for 2.8% of Stag's rent roll, with no other accounting for more than 1% in a portfolio that is nearly completely leased out and notable for its geographic and sector diversity.
A strong tenant base, the ability to raise rents when leases are renewed or vacancies are filled, and the continuing promise of the warehouse business itself make Stag a good August buy-and-hold for income-focused investors.
The consumer continues to spend as the labor market remains strong
Brent Nyitray(Tanger Factory Outlet): Tanger Factory Outlet is a REIT that operates outlet centers in North America. As of June 30, Tanger operated 29 outlet centers representing 2,300 stores and 600 brands, with a gross leaseable area of 11.3 million square feet. The company also has one outlet center under construction in Nashville, and it owns an interest in six other centers.
The outlet center concept is based on having retailers sell brand-name merchandise at a discount to department stores or their full-price online offerings. These outlet centers are located near, but not too close to, major urban areas with easy access off of the interstate. The location is important, because the outlet centers don't want to compete directly with suburban shopping malls.
The U.S. labor market has been surprisingly strong over the past year despite the Federal Reserve's aggressive policy of interest-rate increases, and strong consumer spending benefits retail REITs like Tanger. Most REITs saw a decline in occupancy during the pandemic and have been making progress toward regaining pre-pandemic levels. Tanger Factory Outlet, meanwhile, reported 97.2% occupancy at the end of the second quarter of 2023, which eclipsed the 97% reported on Dec. 31, 2019.
Tanger is guiding for 2023 funds from operations to come in between $1.86 and $1.93 per share, an increase from the $1.83-to-$1.91 range the company had previously released. At current levels, Tanger is trading at price to funds-from-operations ratio of 13.2. That's an attractive level for a high-quality REIT. The guidance amply covers the annual dividend of $0.98 per share for a stock that sports a 4% dividend yield.
A blockbuster outcome
Matt DiLallo (EPR Properties): EPR Properties offers an attractive income stream. The specialty REIT pays a monthly dividend that currently yields 7.7%.
That yield is higher than those of many other REITs because of worries about EPR's tenant base, which weighed on its share price. The REIT gets 40% of its rental income from theater properties, and that's been a concern because of the pandemic's impact on the industry. One of EPR's largest tenants -- Regal Entertainment's parent, Cineworld -- declared bankruptcy last year, leading to uncertainty about the future of its leases with that company.
However, those concerns are fading. EPR recently agreed to a new lease with Regal, covering 41 of the 57 properties it leased to the theater operator. The new deal should enable EPR to recover 96% of the total prebankruptcy rent of the entire 57-theater portfolio next year, assuming a continued recovery in the box office. EPR also found new operators for five of the theaters it will take back. It plans to sell the remaining 11 properties and reinvest the proceeds into non-theater properties.
Meanwhile, another theater operator acquired one of its tenants during the quarter. As part of the deal, the acquiring company assumed all 10 leases and repaid the remaining $11.6 million of deferred rent on those properties.
EPR Properties also continues to make progress on its diversification strategy. It invested nearly $100 million this year to acquire and develop experiential real estate. The REIT anticipates investing between $200 million and $300 million to enhance its portfolio this year. It has plenty of financial flexibility to fund new investments, including nearly $100 million of cash and an unborrowed $1 billion credit facility. These new investments will help grow and diversify its rental income, further supporting its dividend.
With the uncertainty surrounding its theater tenants starting to fade, investors should have more confidence that EPR Properties can sustain its big-time monthly dividend. It's a very attractive income stock to buy this August.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brent Nyitray, CFA has no position in any of the stocks mentioned. Marc Rapport has positions in Amazon.com and Stag Industrial. Matthew DiLallo has positions in Amazon.com, EPR Properties, and Stag Industrial. The Motley Fool has positions in and recommends Amazon.com and Stag Industrial. The Motley Fool recommends EPR Properties and Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.
