3 REITs That Should Survive Dividend Cuts in a Severe Recession

Although there has been more positive inflation news lately, fears of another recession remain.

Tech companies like Meta Platforms Inc.Twitter Inc., Tesla Inc., Oracle Corp. and Microsoft Corp. laid off thousands of workers. The Federal Reserve has just released a report showing that US household debt has risen sharply. The new and existing housing markets are at a standstill, with mortgage rates around 6.5%.

Recessions, like inflation, can wreak real havoc on real estate investment trusts (REITs) as tenants stop paying rent or space becomes vacant. And when REITs lose income and funds from operations (FFO) fall, dividend cuts are sometimes possible.

But many REITs survive the worst and manage to adapt through each economic cycle without cutting dividends. Here are three REITs from different subsectors that, based on their dividend history, earnings and other factors, should survive dividend cuts even during a severe recession:

Federal Realty Investment Trust (NYSE: FRT) is a diversified Maryland REIT with 105 shopping centers and offices and 3,400 residential units. Federal Realty Investment Trust, a member of the S&P 500, has been around since 1962 and is one of the oldest REITs on Wall Street.

Federal Realty Investment Trust holds the REIT record for annual dividend increases spanning 55 years and more are still coming. It recently raised its quarterly dividend from $1.07 to $1.08, and its annual dividend yield of $4.32 yields 4%. The dividend is well covered by an annual FFO of $6.28 and Q3 earnings beat expectations.

In short, Federal Realty Investment Trust could be the most reliable dividend provider in the entire universe of REIT stocks.

Essex Property Trust Inc. (NYSE: ESS) is a San Mateo, California-based residential REIT that owns and manages 62,000 apartment units in 253 communities, along with some retail space, in eight West Coast markets. Essex Property Trust was founded in 1971 and created its initial public offering (IPO) in 1994.

Essex Property Trust has a record of 28 consecutive years of dividend increases, making it an S&P 500 Dividend Aristocrat. It was the only REIT to raise its dividend during the 2010 recession, according to the website.

In Q3, Essex Property Trust increased its Core FFO by 18.3% over Q3 2021. The $14.48 forward FFO easily covers the $8.80 annual dividend yielding 4.1% . This is well above the five-year average of 2.94%, so Essex Property Trust is not only a very reliable dividend provider, but after the 52-week high of $363.36, it could be a bargain at the recent price of $ 212.18.

Universal Health Realty Income Trust (NYSE: UHT) is a Pennsylvania-based healthcare REIT that owns and operates healthcare facilities such as acute care and rehabilitation hospitals, medical office buildings, detached emergency rooms and day care centers. Universal Health Realty Trust has 71 properties in 20 states. About 60% of the properties are medical buildings and clinics.

Universal Health Realty Income Trust has paid quarterly dividends for 36 consecutive years. The $2.84 annual dividend yields 5.6% and has increased nine times since 2017, with no discounts.

Despite a year-over-year reduction in Q3 FFO of $0.60 per share, the future annual FFO of $3.57 still covers the dividend payout with room to spare.

Another positive is that the chairman of Universal Health Realty Income Trust recently bought more shares. Given that, in addition to dividend history and coverage, stock investors can rest easy knowing that this dividend can be safe even in a recession.

REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has worked hard to identify the biggest opportunities in the current market, which you can access for free by signing up for Benzinga’s weekly REIT report.

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