Real Estate With Double-Digit Dividend Growth
Real Estate Investment Trusts (REITs) are very popular with dividend investors.
Generally, REITs pay higher dividend yields relative to other industries.
It makes sense since REITs are required to distribute at least 90% of their taxable income as dividends to investors.
However, REITs aren’t known for dividend growth.
It’s hard to grow dividends when so much money is going out to shareholders.
But EastGroup Properties, Inc. (ticker: EGP), an industrial REIT, is an exception.
EastGroup has paid a dividend every quarter since 1997 and has raised its dividend every year except following the financial crash in 2008.
In the chart, you can see EastGroup has really picked up its dividend growth.
Between 1997 and 2020, EastGroup averaged just under 4% dividend growth annually.
However, in the past 5 years, EastGroup has more than doubled its dividend and has averaged almost 20% dividend growth each year.
If EastGroup maintains its new dividend growth rate, its dividend payment would double every 4 years!
What caused the change?
EastGroup is an industrial REIT, which means it owns and rents out industrial properties to businesses and organizations.
Specifically, EastGroup owns distribution centers, warehouses, and light manufacturing facilities.
After COVID, online retail exploded as customers got accustomed to shopping online rather than in stores.
And the demand for EastGroup’s distribution centers went through the roof.
Funds from operations (FFO), which is considered profit for a REIT, more than doubled between 2020 and 2025.
Can EastGroup keep up the dividend growth?
Well, the REIT isn’t stopping.
EastGroup just raised its dividend again to $1.75 each quarter, which is 13% higher than its last payment.
But you need to act quickly to get the higher dividend payment.
You need to own shares in EastGroup by tomorrow (September 29) or someone else will get the money in their account.
The last important piece for dividend growth is the payout ratio.
Most companies use earnings, but REITs use FFO since earnings tend to be negative due to high depreciation expense.
Despite its aggressive dividend growth, EastGroup has maintained a stable payout ratio in the mid-60s over the past 10 years.
Most REITs have payout ratios over 70%, so EastGroup has a bit more room to keep those dividends growing compared to many of its peers.
EastGroup’s dividend yield is a little modest at 3.4%.
Many REITs have yields over 5%.
However, industrial REITs have lower dividend yields because their stock prices have performed so well.
And if EastGroup can maintain double-digit dividend growth going forward, your income will surpass the income from other higher-yielding REITs.
What REITs do you currently own?
Michael Jennings
Dividend Stocks Research
Category: Dividend Stocks To Buy?
