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Motley Fool Issues Rare “All In” Buy Alert
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Dividend stocks are a great way to let the power of passive income actively help you fund your daily life or pour the payouts back into your portfolio to build your nest egg.
Some of the most reliable players in this arena are real estate investment trusts (REITs). These pools of income-producing properties come in a lot of sizes and sectors, but they’re all required to pay at least 90% of their taxable income as dividends to shareholders.
That makes the 225 or so publicly traded REITs a great place to look for reliable providers of dividend income and good candidates for share price appreciation, to boot. Among my favorites is Alexandria Real Estate Equities (ARE -0.90%).
This Pasadena, California-based provider of laboratory and related office space raised its quarterly dividend by $0.03 in May to $1.18. That extends its run of annual increases to 13 years; if you buy some $5,000 of it at the current price of about $154 a share, you can expect those 32 shares or so to provide in the neighborhood of $150 a year in annual income.
Alexandria concentrates its business in what it calls innovation clusters in North Carolina’s Research Triangle and the Seattle, San Francisco, San Diego, Boston, New York City, and Washington, D.C. markets.
More than 1,000 tenants occupy the high-demand space, including many of the world’s best-known life sciences and pharmaceutical companies such as Moderna (MRNA -0.27%), for whom Alexandria just built a new headquarters in Cambridge, Massachusetts.
The REIT’s current portfolio of about 74 million square feet is growing fast, with about 7.8 million square feet of new space either under construction or about to begin, which will provide a nice revenue bump.
Alexandria Real Estate Equities also is doing great so far this year at the cash register. Revenue was up 26.3% and 27.2% year over year for the first quarter and first half of 2022, respectively. There’s more to come, with second-quarter rental rate increases of about 34% setting a new record for the nearly 30-year-old company.
Now might be a particularly good time to pick up some shares of this dividend machine. After doubling in 10 years to a peak of about $223 a share at year’s end, Alexandria stock has plunged by more than 30%. That’s driven the yield up to about 3% and, with Wall Street estimating a price target of $186.25 — a nice gain of about 20% from current levels — analysts give this stock a “moderate buy” rating.
Of course, we’re talking about dividend income here as much as share price. There’s good reason to believe there’s more upside there, too. Income investors have got to like this from the company’s 2Q22 earnings release: “Our FFO payout ratio of 56% for the three months ended June 30, 2022, allows us to continue to share growth in cash flows from operating activities with our stockholders while also retaining a significant portion for reinvestment.” FFO stands for funds from operations and is an important measure of a REIT’s performance.
That potential for share price appreciation and dividend gains while the REIT expands its portfolio is why I see this as a buy-and-hold stock. I plan to add to my stake in it, too.
Marc Rapport has positions in Alexandria Real Estate Equities. The Motley Fool has positions in and recommends Alexandria Real Estate Equities. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.
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