Dividend Growth Stocks: A Top Real Estate Stock That’s Not a REIT
Top Dividend Growth Stock Yielding 5.05%
The creation of real estate investment trusts (REITs) has been one of the best things that happened to income investors. For decades, REITs allowed regular investors to earn a stable rental income without dealing with all the hassles of being a landlord.
The company I’m about to show you offers all the benefits of a top-notch REIT, except for one thing: it is not a REIT.
I’m looking at Brookfield Property Partners LP (NYSE:BPY), a limited partnership created as a spin-off from Brookfield Asset Management Inc. (NYSE:BAM).
The partnership owns, operates, and develops a large portfolio of real estate assets, which includes office buildings, shopping centers, and industrial warehouses, among others. Just like a REIT, Brookfield Property Partners generates cash flows by leasing out its properties. And because it is publicly traded, it offers the liquidity benefit of a REIT as well.
The most obvious reason why income investors should consider BPY stock is its handsome dividend yield. With a quarterly distribution rate of $0.2950 per unit, the partnership has an annual yield of 5.05%.
The payout has been growing, too. While BPY is a relatively new name for stock market investors—the partnership completed its initial public offering (IPO) in September 2013–its dividend growth is nothing short of impressive. Since its IPO, Brookfield has raised its annual payout every single year. (Source: “Distribution History,” Brookfield Property Partners LP, last accessed September 20, 2017.)
Dividend Growth Backed by a High-Quality Portfolio
The reason why Brookfield can deliver such strong dividend growth lies in the quality of its real estate portfolio. In its core office segment, the partnership owns an interest in 146 office buildings totaling more than 99-million square feet. These properties are located in gateway cities around the world, such as New York, London, Los Angeles, Sydney, and Berlin. (Source: “Corporate Profile,” Brookfield Property Partners LP, last accessed September 20, 2017.)
Moreover, most of Brookfield’s office buildings are rented out through long-term leases. As of August 2017, the partnership’s core office portfolio had an average lease term of eight years. Having long-term leases adds stability to Brookfield’s cash flow.
The partnership also has a high-quality retail segment. Its core retail portfolio consists of 126 best-in-class malls and urban retail properties totaling over 123-million square feet. The segment boasts a 95% same property occupancy and an average rent spread of 20% for leases started in the past 12 months. This means the rent on the new leases were 20% higher than what was previously paid for the same space.
Other than office buildings and shopping centers, Brookfield also diversifies its portfolio through investments in multifamily, hospitality, industrial, and self-storage properties.
Expect Bigger Payouts in the Future
Thanks to a high-quality real estate portfolio, Brookfield has no problem covering its rising dividends. In the first six months of 2017, the partnership achieved a payout ratio of 84%, leaving a margin of safety. (Source: “Brookfield Property Partners Reports Second Quarter 2017 Results,” Brookfield Property Partners LP, August 2, 2017.)
Bigger payouts are likely on the way. Going forward, Brookfield is targeting an annual distribution growth rate of between five and eight percent. That’s why investors looking for a dividend growth stock to add to their portfolio should seriously consider this real estate partnership.