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Dividend Opportunities in Real Estate Sector

Income-oriented investors should keep an eye on Macerich, Park Hotels & Resorts, and Ventas.

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Kevin Brown: Real estate investment trusts are excellent investments for income-oriented investors, so we want to highlight three companies that are paying above-average dividends.

Mall REIT Macerich combines a double-digit dividend yield with a significant discount to our fair value estimate. The company has traded off on fears of retail weakness impacting the company's portfolio, which would force the company to cut their dividend. While they will continue to deal with store closures and higher redevelopment expenses in 2020, we think Macerich's Class A mall portfolio will see solid sales growth and produce enough cash flow to support the current dividend. However, there are significant risks to Macerich's plan, so risk-averse investors should be cautious.

Park Hotels & Resorts is another REIT that income-oriented investors should consider given that the company recently announced a large dividend increase, sending the company's yield to around 9%. We think that Park should see industry leading NOI growth over the next few years as the company's portfolio is in many markets with below-average supply growth and that management is only midway through a years-long process of improving hotel operations. However, given hotels' sensitivity to the overall economy, Park is another higher-risk company that could underperform if leading economic indicators turn negative.

Investors looking for a defensive name that has a mid-5% yield should consider healthcare REIT Ventas. While senior housing is going through a downturn due to high supply, the pace of construction starts suggests that supply should fall off just as demand from the baby boomers picks up. Even during the great financial crisis, Ventas maintained and then raised its dividend, so we think they present an investment with upward-trending fundamentals.

In summary, there are several REITs that income-oriented investors should keep an eye on for both high dividend payouts and potential capital gains.

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