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7 Best Real Estate Sector Dividend Stocks

These dividend growth stocks are my top-ranked Real Estate sector picks. Unfortunately, none of the stocks are trading below my risk-adjusted Buy Below prices.

Today’s article is the penultimate one in my article series identifying high-quality stocks in each GICS sector.

I routinely rank stocks in my watchlist of dividend growth stocks, Dividend Radar. When I rank Dividend Radar using DVK Quality Snapshots, some sectors perform better than others. For example, the best Health Care stock is ranked #1, but the best Industrials stock is ranked #14, and the best Energy stock is ranked #150!

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That doesn’t mean one shouldn’t invest in the Energy sector! Instead, recognize that diversifying investments across multiple sectors helps to mitigate risk. The reason is some sectors perform better than others in different economic conditions. It is worth revisiting the following chart that ranks the historical performance of each GICS sector and the S&P 500 since 2007. The sectors that outperformed the S&P 500 varies from year to year.

The table ranks the best to worst sector returns since 2007 (source: Novel Investor).

The table ranks the best to worst sector returns since 2007 (source: Novel Investor).

In case you missed previous articles in this series, here they are:

I use DVK Quality Snapshots to assess the quality of dividend growth stocks, assigning 0-5 points to each stock based on how they rate on five widely-used quality indicators. The total of these points is a stock’s quality score out of a maximum of 25 points. To rank stocks, I sort them by descending quality scores and using tie-breaking metrics where necessary.

Dividend Radar maintains a list of stocks trading on U.S. Exchanges with streaks of five years or more of higher annual dividend payouts. Dividend Radar is a free resource for dividend growth investors. It is updated and published every Friday and is available for download here. The latest edition (dated September 24, 2021) contains 747 stocks. Only 50 of these stocks fall in the Real Estate sector.

The Real Estate Sector

The Real Estate sector contains Equity Real Estate Investment Trusts (REITs) and Real Estate Management and Development services. The sector was added to the GICS in August 2016 when S&P Dow Jones Indices and MSCI moved stock-exchange listed Equity REITs and other listed real estate companies from the Financials sector to form a new headline sector under GICS. Mortgage REITs remained in the Financials Sector.

The addition of the Real Estate sector to the GICS recognized the growth in size and importance of equity REITs in the economy. Over the past 25 years, the total equity market capitalization of listed U.S. equity REITs has exploded to more than $1 trillion.

The Real Estate sector represents about 4.0 percent of the equity market capitalization of the S&P 1500. Equity REITs make up about 98 percent of the equity market capitalization of the sector. Real Estate Management & Development companies make up the remainder.

A detailed breakdown of the Real Estate sector (source: Dividend.com)

A detailed breakdown of the Real Estate sector (source: Dividend.com)

Sector and Performance Comparison

Let’s compare the sector averages and historical performance of the GICS sectors over different periods to see how the Real Estate sector compares:

Sector averages of Dividend Radar stocks and the historical performance of sectors (data sources: Dividend Radar, Fidelity Research, and Google Finance - 24 September

Sector averages of Dividend Radar stocks and the historical performance of sectors (data sources: Dividend Radar, Fidelity Research, and Google Finance - 24 September

The table is color-coded to show each column’s highest (green) and lowest (red) values. The Real Estate sector has performed about average over the various time frames in the table. It has the third-smallest average market caps of the 11 GICS sectors and an average beta of 0.91.

Sector performance charts give another interesting perspective, especially when comparing those performances to the performance of the S&P 500:

Sector performance charts (created by the author with data from Fidelity Research - 24 September 2021)

Sector performance charts (created by the author with data from Fidelity Research - 24 September 2021)

The Real Estate sector underperformed the S&P 500 in every trailing time frame, except over the past year!

Quality Assessment

I use DVK Quality Snapshots to assess the quality of dividend growth stocks. The system employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points. To rank stocks, I sort them by descending quality scores and break ties by using the following factors, in turn:

  • SSD Dividend Safety Scores
  • S&P Credit Ratings
  • Dividend Yield

I rate stocks by quality score as Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Investment Grade ratings have quality scores in the range of 15-25, while Speculative Grade ratings have quality scores below 15.

Top-Ranked Real Estate Sector Stocks

Here are the seven top-ranked dividend growth stocks in the Real Estate sector:

Note that I’m long the two highlighted stocks in my DivGro portfolio (APD).

Note that I’m long the two highlighted stocks in my DivGro portfolio (APD).

1. American Tower Corporation (AMT)

AMT is a real estate investment trust that owns, develops, and operates multi-tenant communications sites across the globe. Customers include wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies, and municipalities. AMT was founded in 1995 and is headquartered in Boston, Massachusetts.

2. Crown Castle International Corp. (CCI)

CCI owns, operates and leases more than 40,000 cell towers and more than 75,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. This nationwide portfolio of communications infrastructure connects cities and communities to essential data, technology and wireless service.

3. Mid-America Apartment Communities, Inc. (MAA)

Founded in 1977 and based in Memphis, Tennessee, MAA is a self-administered and self-managed REIT that focuses on the acquisition, selective development, redevelopment, and management of multifamily homes throughout the Southeastern and Southwestern regions of the United States. MAA has ownership interest in more than 100,000 operating apartment homes in the United States.

4. Digital Realty Trust, Inc. (DLR)

DLR is a real-estate investment trust that owns, acquires, develops, and operates data centers. The company provides data center and colocations solutions to domestic and international tenants, including companies providing financial and information technology services. The company was founded in 2004 and is headquartered in San Francisco.

5. Equinix, Inc. (EQIX)

Founded in 1998, EQIX connects the world's leading businesses to their customers, employees and partners inside the most-interconnected data centers. On this global platform for digital business, companies come together across more than 50 markets on five continents to reach everywhere, interconnect everyone and integrate everything they need to create their digital futures.

6. Realty Income Corporation (O)

Known as The Monthly Dividend Company®, O is an equity REIT that invests in commercial real estate markets in the United States. The company earns income from more than 5,000 properties under long-term lease agreements with commercial tenants. O was founded in 1969 and is headquartered in San Diego, California.

7. AvalonBay Communities, Inc. (AVB)

AVB is a real estate investment trust focusing on the development, redevelopment, acquisition, ownership, and operation of multifamily communities primarily in the United States. The company owns or holds an interest in approximately 260 operating apartment communities in 10 states and the District of Columbia. It operates its apartment communities under three core brands: Avalon, AVA and Eaves by Avalon. AVA was founded in 1978 and is based in Arlington, Virginia.

Please note that these stocks are candidates for further analysis, not recommendations.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

  • Yrs: years of consecutive dividend increases
  • Qual: DVK Quality Snapshots quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: Chowder Number, a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: Value Line's Safety Rank
  • VL Fin Stren: Value Line's Financial Strength ratings
  • MS Econ Moat: Morningstar's Economic Moat
  • S&P Cred Rating: S&P Global's Credit Ratings
  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
  • Buy Below: my risk-adjusted buy below price (see below)
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price
Screen Shot 2021-09-28 at 9.35.36 AM
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

My risk-adjusted Buy Below price allows a premium of up to 10% for stocks rated Exceptional, and a premium of up to 5% for stocks rated Excellent. In contrast, my Buy Below price equals my fair value estimate for stocks rated Fine, while I require a discount of at least 10% for stocks rated Decent. I'm not interested in stocks rated Poor or Inferior.

I use a survey approach to estimate fair value, referencing fair value estimates and price targets from several online sources, including Morningstar and Finbox. Additionally, I estimate fair value using the 5-year average dividend yield of each stock using data from Portfolio Insight. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

Commentary

All of the top-ranked Real Estate sector stocks are rated Fine, and none of them are trading below my risk-adjusted Buy Below prices. AMT is the only stock whose forward dividend yield exceeds its 5-year average dividend yield, but not by much.

It is interesting to compare the relative performances of these stocks. Consider the following chart showing the total returns (price appreciation and dividends) of the top-ranked Real Estate sector stocks over the trailing 10-year time frame:

Comparison of the total returns of the top-ranked Real Estate sector stocks over the past ten years (source: Portfolio-Insight.com)

Comparison of the total returns of the top-ranked Real Estate sector stocks over the past ten years (source: Portfolio-Insight.com)

Three Real Estate sector stocks (AMT, CCI, and EQIX), outperformed the SPDR S&P 500 ETF (SPY), an ETF designed to track the 500 companies in the S&P 500 index.

EQIX was the best performer with total returns of 1,019% (27.3% annualized) versus SPY’s 358% (16.4% annualized), a 2.85-to-1 margin. The stock has the shortest streak of dividend increases (7 years). I‘m long DLR and O, both of which underperformed the SPY over this time frame.

Given its high 5-year DGR of 19.6%, AMT looks like an interesting candidate. Its 5-year yield on cost of 4.4% and high Chowder Number of 21 indicate strong dividend income and growth prospects. However, it is advisable to wait for a more favorable entry point. My risk-adjusted Buy Below price is $228. For investors willing to accept some risk, my fair value estimate of AMT is $252.

AMT’s diluted AFFO/Share and dividends paid (TTM), with stock price overlay (source: Portfolio-Insight.com)

AMT’s diluted AFFO/Share and dividends paid (TTM), with stock price overlay (source: Portfolio-Insight.com)

Concluding Remarks

This article presented the seven top-ranked dividend growth stocks in the Real Estate sector.

Based on my rating system that maps from DVK Quality Snapshots to quality scores, all these stocks are rated Fine. Unfortunately, none of them are trading below my risk-adjusted Buy Below prices.

In my opinion, AMT looks like an interesting candidate, but not at current price levels. Wait for a more favorable entry point. Below $228 per share would be best, though investors willing to accept some risk could pay up to $252 per share.

Thanks for reading!

Next time, we’ll conclude this series by looking at the Utilities sector stocks.

You can follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

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