DDR Stock: An Overlooked Real Estate Income Play Yielding 7.7%
Collect a 7.7% Yield from This High-Dividend Stock
For the most part of the last decade, investors have been searching for yield in the stock market. One sector that is of particular interest to income investors is real estate. With stable and predictable cash flows, real estate investment trusts (REIT) have become a staple in many income investors’ portfolios.
With increased investor enthusiasm towards the sector, real estate stocks have generally gotten more expensive. And since a company’s dividend yield is calculated by dividing its annual payout by its share price, higher prices often translate to subdued yields.
There is, however, one real estate company that has largely been overlooked. In fact, its share price has dropped considerably over the past year and has only started to climb back up very recently. At the current price, the company offers an annual dividend yield of 7.7%.
Of course, a high dividend yield could be a sign of trouble. But in the case of this real estate stock, its generous payout is backed by a rock-solid business.
I’m talking about DDR Corp (NYSE:DDR), a REIT headquartered in Beachwood, Ohio.
A “Power Center” Company
There are many different types of REITs, such as residential REITs, industrial REITs, retail REITs, and healthcare REITs. DDR Corp is a retail REIT. To be more specific, the company specializes in something called “power centers.”
A power center, also known as a “retail park,” is an open-air shopping center that typically ranges from 250,000 square feet to 600,000 square feet in size. It usually contains several big box retailers–Wal-Mart Stores Inc (NYSE:WMT), for instance–and some smaller retailers with a shared parking area.
By the end of the second quarter, DDR Corp owns 298 power centers located in 34 states and Puerto Rico. The properties represent a total of 100-million square feet and are actively managed by the company.
Generous, Reliable Dividends
The top reason to consider DDR Corp today is the company’s generous payout. With a quarterly dividend rate of $0.19 per share, DDR stock is yielding 7.7%.
And if you are concerned about the company’s dividend safety, a look at its financials should be reassuring.
For a real estate investment trust, a key metric to look for is funds from operations (FFO). This is because being able to generate enough recurring FFO is the only way for a REIT to support its dividends in the long run.
Last year, DDR Corp declared total dividends of $0.76 per share. It also generated operating FFO of $1.28 per share, achieving an FFO payout ratio of 59.4%. (Source: “DDR Reports First Quarter And Year End 2016 Operating Results,” DDR Corp, February 13, 2017.)
In the first six months of this year, the company generated operating FFO of $0.59 per share while declaring $0.38 of dividends per share. That translates to an FFO payout ratio of 64.4%. (Source: “DDR Reports Second Quarter 2017 Operating Results,” DDR Corp, July 26, 2017.)
In other words, the company is not paying out all the operating FFO, leaving a margin of safety.
Final Thoughts on This High-Dividend Stock
At the end of the day, it’s hard to say when this high-dividend stock will make a meaningful recovery in its share price. But with a solid 7.7% yield, the company could represent an opportunity for yield-seeking investors interested in the real estate sector.