Top 3 REITs Delivering Exceptional Dividend Growth

Investing in REITs for Superior Income Generation

When looking for reliable sources of investment income, Real Estate Investment Trusts (REITs) stand out as an excellent choice. By law, these trusts must distribute at least 90% of their taxable income to shareholders in the form of dividends. This characteristic often leads to impressive dividend yields, which can sometimes reach double digits.

Investing in REITs offers not only substantial dividend income but also an opportunity to participate in the real estate sector without the need to manage physical properties. This article explores three REITs that have shown remarkable increases in their dividend payouts in 2024, capitalizing on the ongoing recovery in the real estate market.

1. Summit Hotel: Recovering Strongly Post-Pandemic

Summit Hotel Properties (NYSE: INN) has demonstrated resilience with a 36% increase in its total dividend payouts this year compared to 2023. The company has raised its dividend from $0.22 per share last year to $0.30 in 2024, marking a significant recovery following the pandemic's impact, which led to a temporary suspension of dividends in 2021.

Before the pandemic, Summit Hotel had consistently raised or maintained its annual dividend since 2011, reflecting its commitment to returning value to its investors. Currently, based on the last quarterly dividend payment of $0.08, the company offers an indicated dividend yield of 4.7%, up from a 3.5% yield earlier in the year. The sustainability of these dividends is bolstered by a low payout ratio of only 31%, calculated using Adjusted Funds From Operations (AFFO), which is a preferable measure for REIT performance as it excludes non-cash expenses like depreciation.

2. Veris Residential: Substantial Dividend Increase

Next on our list is Veris Residential (NYSE: VRE), which has impressively increased its annual dividend payments by 150% this year. From just $0.11 per share in 2023, the company now distributes over $0.26 per share, consistently raising its quarterly dividends throughout 2024. The latest quarterly payout was $0.08 per share.

If the current dividend remains stable, the indicated dividend yield for Veris is slightly above 2%, having started the year at 1.3%. Its sustainable payout ratio, under 40%, supports future increases. Veris specializes in Class A multifamily properties, primarily targeting environmentally conscious inhabitants, with 83% of its properties boasting Green certification. The company’s focus on the Northeastern market, including affluent areas like Jersey City and Boston, has helped drive a 70% increase in revenue per property since early 2021. Interestingly, despite rising rental prices, residents' wages have outpaced rent increases, suggesting that the company is well-positioned for ongoing rent growth.

3. RLJ Lodging Trust: Attractive Yield Post-Increase

Finally, RLJ Lodging Trust (NYSE: RLJ) has increased its dividend by 39% in 2024, with a payout of $0.50 per share. This noteworthy rise has caused the dividend yield to nearly reach 5.9%, compared to just 3.4% at the beginning of the year. Like many within the sector, RLJ had to adjust its payouts significantly in response to the challenges of 2020.

Historically, RLJ Lodging Trust had paid $1.32 in dividends per share in 2019, only to drop to $0.04 per share the following year. The company primarily invests in premium-branded hotels, with over 90% of its properties affiliated with renowned brands like Marriott, Hilton, and Hyatt. RLJ believes that its urban-centric portfolio is well-positioned for future growth, anticipating that demand in urban markets will surpass the general trends of the industry.

Frequently Asked Questions

What are REITs and why are they important for investors?

REITs, or Real Estate Investment Trusts, are companies that own, operate, or finance income-generating real estate. They provide a way for individual investors to earn a share of the income produced through commercial real estate ownership without actually having to buy, manage, or finance any properties themselves.

How do REITs distribute their earnings?

By law, REITs must distribute at least 90% of their taxable earnings to shareholders as dividends. This distribution requirement is why many REITs offer attractive dividend yields.

Why is it significant that some REITs are increasing dividends?

Increases in dividends are generally a positive signal of a company's financial health and operational success. For investors, growing dividends can enhance total returns and are often a sign of management’s confidence in future earnings.

What factors contribute to a REIT's ability to maintain or increase dividends?

A REIT's ability to maintain or increase dividends often depends on its cash flow from operations, occupancy rates, and overall market conditions. Strong management and a well-positioned property portfolio also play critical roles.

Who are the highlighted REITs in this article?

The article discusses three REITs: Summit Hotel Properties, Veris Residential, and RLJ Lodging Trust, all of which have shown substantial increases in dividend payouts in 2024.

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