Summary
- ADC, EPR, O, and SLG are four REITs that currently pay a monthly dividend
- ADC, EPR, and SLG only recently started to pay dividends on a monthly basis.
- Since their inceptions, ADC, EPR, and SLG have had dividend cuts, dividend pauses, or combination of the two.
- Dividend amounts as well as their frequency are subject to change. EPR dropped in valuation by over 80% following the 2020 recession and stopped dividend pays for a year.
- Over the past 23 years, investing in ADC with dividend reinvestments would have on average outperformed S&P500 and Nasdaq100 ETFs. More recently ADC had a 60% dividend cut which may reduce future performance.
A recent article was cross-posted on Yahoo finance titled "Four REITS That Pay Monthly Dividends". This article scope was limited to introducing the four REITs and focused and their higher than normal dividend frequency, but did not going into their past performance. This current article aims to go more in-depth into each of the listed REITs and provide an overview of their past frequencies, dividend cuts, and performance, and compare them with S&P500 and Nasdaq ETFs.
REIT
A Real Estate Investment Trust (REIT), is a company that owns and (generally) operates income-producing real estate. These REITs invest in common types of real estates including apartment buildings, houses, and commercial real estate. By purchasing REITs, an investor can have a liquid exposure to the real estate market without purchasing and managing any properties themselves.
The four REITs listed in the mentioned articles are
- Agree Realty Corp (ticker: ADC) with a current annualized 3.61% dividend
- EPR Properties (ticker: EPR) with a current annualized 6.19% dividend
- Realty Income Corp (ticker O) with a current annualized dividend of 4.04%
- SL Green Realty Corp (ticker: SLG) with a current annualized dividend of 7.88%
| REIT | Ticker | IPO | Dividend/share ($) | PE ratio (TTM) |
|---|---|---|---|---|
| Agree Realty Corp | ADC | 1994-04-15 | 0.234 | 43 |
| EPR Properties | EPR | 1997-11-17 | 0.275 | 30 |
| Realty Income Corp | O | 1994-10-17 | 0.248 | 75 |
| SL Green Realty Corp | SLG | 1997-08-10 | 0.311 | 12 |
The high dividend frequency is tempting, but there are are risks associated with every investment. These REITs are no exceptions with risks, notably:
- Losing the principal.
- There are no guarantees that the dividends pay-out per share is maintained or not cut in the future. A change in the dividend amount also generally translates to lower principal.
Since investments in high-dividend paying stocks are generally long-term investments ("buy and hold"), it is of interest to know whether the dividend pay-out may change, or how much of the principal may go down, or a combination of the two. Naturally, one may then ask whether they are advantages over more diversified ETFs with low expense ratios.
Past performance is not indicative of future performance. However, still some level of expectation over these questions can be obtained by looking at past performance of the REITs.
Dividend consistency
This graph shows the history of the paid dividend (per share) for each of the listed REITs. The gray regions indicate recession periods.
Note that ADC, SLG, and ERP have had at least 1 dividend cuts in the past. In fact, SLG had an 60% cut in its dividends following the 2020 recession. What is not evident from this graph, however, is that there was also a pause in the paid dividends. That is show in the next figure:
The above graph shows the history of the time elapsed since the time elapsed since the previous paid dividend. Notice that there is a sudden jump for EPR Properties (EPR) occurring at 2021. This is because EPR stopped its dividend for over a year following the 2020 recession. Note that during this period, EPR stock also crashed by more than 80%. This means that if an investment was made in EPR at its peak in 2019, the investment principal would have dropped in value by over 80% a year later, and not received any dividends for a year. These may be risks and conditions that people investing in REITs may not consider.
The second notable information from this graph is that while Realty Income Corp (O) has maintained a dividend interval of 1 month since 1996, other 3 REITs historically have been paying out dividends each quarter. That is, only recently was the dividend frequency reduced to monthly for ADC, EPR, and SLG.
Past Performance
Following graph shows the mean of the profit/year ratio assuming an invest one-time investment occurring at specified time on the x-axis to present day, where the paid dividends are reinvested. As an example, consider the EPR graph where on January 2008 it had, roughly 15% profit/year. That means that if an investment was made on January 2008, the mean of the profit/year to present day was 15% per year.
The gray regions once again highlight the period where the economy was in a recession. The peak seen in these regions effectively reflect "buying the dip", where they would have had the highest rate of return to present day.
Want to interactively compare the performance of these REITs Head on over to the hindsight investing page to look back with actual market data.
Outside of the 2008 recession, and more recently following the 2020 recession, the mean of the return has been generally decreasing. In the case of SLG, buying and holding SLG in 2000 would have netted an average of 25% /year (with paid dividends), buying and holding SLG in 2005 would have had an average profit of 15%/year, while buying and holding SLG in 2015 would have had an average return of 0%/year.
During these time periods, the best performing of these four REITs, characterized by consistency, has been arguably ADC.
| REIT | Mean of Average Return (%/year) | Mean of average StdDev |
|---|---|---|
| ADC | 18.8 | 15.1 |
| O | 17.6 | 12.2 |
| EPR | 16.3 | 13.4 |
| SLG | 6.4 | 6.1 |
Comparison with S&P500 and Nasdaq100 ETFs
Naturally we may want to compare the performance of these REITs with other low-cost ETFs following major market indices. We only consider ADC here since it had highest mean profit over the course of investing at various points back to 2000.
To compare against S&P500 and Nasdaq100, we consider SPY and QQQ, respectively. Side note: currently ADC is not a holding of either of these two ETFs.
The above graph shows the mean of the average profit per year for ADC, SPY and QQQ dating back 23 years. As in the previous figures, each point corresponds to the mean of the profit assuming a one-time investment occurring at that point. The shaded region between each line corresponds to one standard deviation above and below the mean of profit.
Visually, SPY has a uniform profit of roughly 8.5%/year regardless of the investment time. QQQ is also fairly uniform, with a mean of ~14%/year. ADC outperforms both these with a mean of ~18%/year, though visually it appears that the return rate with investments occurring more recently. Table below summarizes the mean and the standard deviation of the average profit/year for a one-time investment at various points in time.
| REIT | Mean of Average Return (%/year) | Mean of average StdDev |
|---|---|---|
| ADC | 18.8 | 15.1 |
| QQQ | 14.3 | 14.4 |
| SPY | 8.5 | 7.5 |
Keep in mind that, as noted in the previous section, more recently ADC had a 60% dividend cut. This significant cut in dividends can lower the expected return of ADC going forward.
