Many investors view dividend-paying stocks as “safe havens,” but as Foolish investors, we know that dividends are not guaranteed, because companies must still be able to generate enough cash flow to make their payments. It’s for this reason that you must always do your homework before investing in high yielders, especially when considering those with yields upwards of 8%.
Fortunately for those of you who are reading this article, I’ve done the necessary research and selected two real estate investment trusts (REITs) with yields of 8-10% and the cash flows to back it up, so let’s take a closer look at each to determine if you should invest in one of them today.
1. Artis Real Estate Investment Trust
Artis Real Estate Investment Trust (TSX: AX.UN) owns and manages 260 office, industrial, and retail properties, comprising of approximately 26.6 million square feet located across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and select markets in the United States.
It currently pays a monthly distribution of $0.09 per share, representing $1.08 per share on an annualized basis, and this gives its stock a very high yield of about 8.2% at today’s levels. This yield is also very safe when you consider that its adjusted funds from operations totaled $88.5 million ($0.63 per share), and its distributions totaled just $76.18 million ($0.54 per share) in the first half of 2016, resulting in a solid 86.1% payout ratio.
Investors must also make the following two notes about Artis’s distribution.
First, it has maintained its current annual distribution rate since 2009.
Second, I think its consistent and ample generation of adjusted funds from operations, including $180.32 million ($1.30 per share) in fiscal 2015 and the aforementioned $88.5 million ($0.63 per share) in the first half of 2016, and its very high occupancy rate, including 93.8% as of June 30, could allow it to continue to maintain its current annual distribution rate for the foreseeable future.
2. BTB Real Estate Investment Trust
BTB Real Estate Investment Trust (TSX: BTB.UN) owns and manages 72 retail, office, and industrial properties, comprising of approximately 5.1 million square feet located across eastern Canada.
It currently pays a monthly distribution of $0.035 per share, representing $0.42 per share on an annualized basis, and this gives its stock a very high yield of about 9.1% at today’s levels. This yield is also very safe when you consider that its recurring distributable income totaled $9.38 million ($0.269 per share) and its distributions totaled just $7.55 million ($0.21 per share) in the first half of 2016, resulting in a sound 80.5% payout ratio.
Investors must also make the following two notes about BTB’s distribution.
First, it has raised its annual distribution each of the last two years, but it’s currently on pace to simply match 2015’s annual distribution of $0.42 per share.
Second, I think its consistent and ample generation of recurring distributable income, including $18.73 million ($0.544 per share) in fiscal 2015 and the aforementioned $9.38 million ($0.269 per share) in the first half of 2016, and its high occupancy rate, including 91% as of June 30, could allow it to maintain its current annual distribution rate going forward or allow it to announce a very slight hike before the end of the year to extend its streak of annual increases.
