AGNC Funding (NASDAQ: AGNC) stands out amongst dividend shares. The mortgage-focused actual property funding belief (REIT) at the moment yields greater than 13%. That places its payout 10 occasions increased than the S&P 500‘s dividend yield. The REIT pays its traders every month, enabling them to gather a really profitable passive earnings stream.
Nevertheless, if there’s one knock towards AGNC Funding, it is that it does not improve its dividend. The total returns traders earn are usually restricted to the mortgage REIT’s month-to-month dividend.
These searching for a bit extra pleasure ought to try fellow REIT EPR Properties (NYSE: EPR). It additionally pays a high-yielding monthly dividend, at the moment over 7%. That payout ought to steadily rise because the REIT expands its portfolio and money circulate per share.
All concerning the earnings
AGNC at the moment pays its traders $0.12 per share in dividends every month, or $1.44 yearly. It has paid that fee because it decreased its dividend throughout the pandemic. That wasn’t the primary time the mortgage REIT lower its payout:
AGNC Dividend knowledge by YCharts
The REIT, which invests in mortgage-backed securities (MBS) backed by authorities businesses, has needed to lower its dividend through the years due to the influence rates of interest and different components have on its earnings. For instance, falling charges lead debtors to refinance their higher-rate mortgages, which impacts the curiosity earnings AGNC Funding earns on its portfolio. That is one of many components that has triggered its earnings per share to fall through the years, necessitating the dividend cuts.
Regardless of these cuts, the REIT has delivered strong complete returns. Whereas its inventory worth has fallen 45% because it got here public in 2008, it has delivered a 450% complete return, or 11% annualized, solely from its profitable dividend.
The REIT’s payout appears secure for now, particularly with the Federal Reserve lately lowering rates of interest, which ought to assist decrease its borrowing prices. Nevertheless, it does not provide any upside past that dividend. So if you happen to’re searching for some inventory worth appreciation potential, AGNC Funding is not more likely to ship any. Its inventory worth might hold declining because it points extra shares to fund new MBS investments.
Extra thrilling return potential
EPR Properties is a specialty REIT centered on experiential actual property. It owns film theaters, points of interest, experiential lodging properties, and different leisure venues. It leases these properties again to working firms below long-term net leases. These leases require that tenants cowl the property’s working prices, together with routine upkeep, constructing insurance coverage, and actual property taxes. In the meantime, its leases usually characteristic rental escalators that typically increase rents by 1.5% to 2% yearly, or 7.5% to 10% each 5 years.
The REIT’s leases usually present it with regular and rising rental earnings. That rising earnings basis places EPR Properties in a strong place to extend its dividend.
It enhances lease development by making accretive new investments. It plans to spend $200 million to $300 million on new investments this yr. It invested $85 million within the first quarter, together with $33.4 million for an attraction property and $14.7 million to purchase land and finance two build-to-suit eat-and-play developments. It adopted that up by spending $46.9 million within the second quarter, totally on experiential build-to-suit growth and redevelopment initiatives. EPR Properties at the moment has $180 million in extra initiatives it expects to fund over the following two years.
These development drivers have the REIT on monitor to develop its funds from operations (FFO) as adjusted by 3.2% on the mid-point this yr. That rising money circulate enabled EPR to boost its dividend by 3.6% earlier this yr.
The corporate estimates that it has the capability to internally fund sufficient new investments with post-dividend free money circulate, capital recycling, and its sturdy stability sheet to develop its FFO per share at a low-to-mid single-digit annual fee. As rates of interest fall and its cost of capital improves, it might develop even sooner by securing outdoors funding to ramp up its funding quantity. Within the meantime, its modest development fee ought to nonetheless help a gradual rise in its share worth. Add in the dividend, and its complete returns might exceed 10% yearly. In the meantime, its longer-term complete return potential is extra strong, evidenced by the greater than 1,300% complete return it has delivered since coming public in 1997.
A extra thrilling funding
AGNC Funding ought to provide its traders with a secure dividend every month. It is extra of a fixed-income funding, for the reason that dividend, as profitable as it’s, will most likely make up your entire return, given the REIT’s lack of development.
For these searching for the thrill of extra upside potential, EPR Properties is a superb choice. It, too, pays a horny month-to-month dividend. As well as, it ought to be capable to develop its earnings and dividends sooner or later, which ought to allow it to ship some inventory worth appreciation together with profitable dividends. That makes it a greater choice for these searching for to develop their wealth and earnings.
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Matt DiLallo has positions in EPR Properties. The Motley Idiot recommends EPR Properties. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
