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2 REITs With Eye-Catching Dividends

They have withstood the coronavirus in ways other REITs have not.

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Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Kevin Brown: Real estate investment trusts are often utilized by income-oriented investors for their high and relatively steady dividend payouts. So, we want to highlight two companies that are both paying above-average dividends and trading at discounts to our fair value estimates for the companies.

The ongoing pandemic has negatively impacted the ability of many REITs to collect revenue from their tenants. So, a significant number reduced or suspended their dividend payments for the second and third quarters.

The two companies we are highlighting today have maintained their high dividend payouts in both the second and third quarters, and we believe their cash flows should remain steady enough to consistently pay their current dividend levels. 

Shopping center REIT Regency Centers' (REG) underperformance in 2020 means that the company is currently paying a dividend yield near 6% while also trading at a discount to our fair value estimate. The company traded off on fears of retail weakness stemming from the coronavirus shutdowns and a broad economic recession impacting the company's portfolio.

However, Regency's strategy to own high-quality shopping centers with grocery stores as anchors is paying off as grocery stores have consistently produced double-digit sales growth since the start of the pandemic. This is keeping foot traffic high at Regency's portfolio, which supports sales growth across the portfolio and thus revenue for Regency. We therefore think Regency's dividend is relatively safe despite the chaos in the retail environment. 

Healthpeak (PEAK) is a healthcare-oriented REIT currently paying a low 5% dividend yield and is currently trading at a modest discount to its fair value estimate.

The company's portfolio of life-science buildings in some of the largest research campuses across the country and medical-office buildings attached to major hospital systems should continue to provide Healthpeak with dependable growing streams of revenue. While senior housing is going through a downturn due to the coronavirus, this segment should produce growth over the next decade as demand from baby boomers picks up. We think Healthpeak presents a safe short-term investment with fundamentals that will trend upward over the coming years. 

In summary, there are several REITs with high dividend payouts trading at attractive discounts that income-oriented investors should consider adding to their portfolio.

Kevin Brown does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.