Why EPR Properties Remains a Top Monthly Dividend Stock

EPR Properties (NYSEEPR) About This Top Monthly Dividend Stock

Looking to Earn Monthly Income From Stocks? Read This

Remember when Wall Street wasn’t so keen on real estate investment trusts (REITs) about a year ago? Well, that’s when investors should really have done their own analysis instead of following the herd. Sure, many REITs did see their share prices tumble at that time, but if you listened to the so-called Wall Street experts, you could be missing out on some serious gains.

Case in point: EPR Properties (NYSE:EPR) is a REIT headquartered in Kansas City, Missouri. Like many of its peers, this real estate stock did experience a downturn around March and April of 2018. At one point, EPR shares were trading in the low $50s.

Since then, though, the stock has made a strong comeback. Over the past 12 months,  EPR stock surged more than 40%, which was quite a big move considering that the company is mostly known for income.

EPR Properties Stock Chart

Chart courtesy of StockCharts.com

Of course, we know that at a given dividend rate, a company’s dividend yield moves inversely to its share price. So when EPR stock was enjoying a nice rally, its yield probably got lower.

But here’s the thing: because the company had such a generous dividend policy to begin with, its yield remains attractive even after the stock’s rally. Furthermore, rather than maintaining the dividend, management has raised the company’s payout this year.

Add it up and you’ll see that with EPR stock trading at $77.43 apiece, the annual yield of the company stands at 5.8%. To put this in perspective, the average dividend yield of all S&P 500 companies is a measly 1.9% at the moment. (Source: “S&P 500 Dividend Yield,” Multpl.com, last accessed May 8, 2019.)

The story gets even better. While most dividend stocks today follow a quarterly distribution schedule, EPR Properties decided to reward shareholders more frequently. Since the second quarter of 2013, the company has been paying investors monthly dividends.

And like I said, EPR also raises its payout. When the company first started paying shareholders on a monthly basis, its monthly dividend rate was $0.2633 per share. Today, it is mailing out $0.3750 per share every month. That translates to a total increase of 42.4% in just six years. (Source: “Dividends,” EPR Properties, last accessed May 8, 2019.)

EPR Properties: A Reliable Monthly Dividend Stock

Since real estate is more known for providing income rather than growth, you might be wondering whether the company can actually afford such aggressive dividend hikes.

Well, judging by the company’s financials, the answer is a resounding “yes.”

As is the case with most real estate stocks, the key performance metric at EPR Properties is funds from operations (FFO). By comparing the company’s FFO to its dividends paid for a given reporting period, investors can see whether the business generated enough money to cover its payout.

In 2018, EPR Properties generated adjusted FFO of $460.4 million, or $6.10 per diluted common share. In comparison, the company’s adjusted FFO in 2017 was $360.5 million, or $5.02 per diluted common share. That is, the per share figure represented a 22% increase year-over-year. (Source: “EPR Properties Reports Fourth Quarter And 2018 Year-End Results,” EPR Properties, February 25, 2019.)

Most importantly, EPR Properties’ adjusted funds from operations easily covered its dividends. Simple calculation shows that with total dividend payments of $4.32 per share and adjusted from operations of $6.10 per share for the year, the company had a payout ratio of 70.8% in 2018.

When it comes to REITs, I prefer to see companies paying out less than 90% of their adjusted funds from operations due to the margin of safety. With a payout ratio of just over 70% last year, EPR Properties had one of the safest dividend policies in the real estate industry.

Fast forward to today, and we see that the company has continued to cover its payout with ease. In the first quarter of 2019, EPR Properties generated adjusted FFO of $102.6 million, or $1.36 per diluted common share. Considering that EPR paid total dividends of $1.125 per share for the quarter, its payout ratio came out to 82.7%. (Source: “Correcting And Replacing EPR Properties Reports First Quarter 2019 Results,” EPR Properties, April 29, 2019.)

Also worth noting is that the company’s first-quarter results represented another sizable increase on a year-over-year basis. In the same period of last year, EPR’s adjusted funds from operations was $94.0 million, or $1.26 per diluted common share.

In other words, EPR Properties has no problem affording those dividend increases because its adjusted FFO per share has been growing at a faster pace than its dividend per share.

A Unique Real Estate Business

Numbers aside, the company also stands out due to the nature of its business.

In this day and age, the most popular REITs on the market tend to focus on one type of real estate property, be it office, industrial, or retail. EPR Properties, on the other hand, specializes in three types of real estate investments all at once: entertainment, recreation, and education.

In the entertainment segment, the company owns megaplex theaters, entertainment retail centers, and family entertainment centers. For recreation, EPR owns golf courses, ski areas, and other attractions. The company’s education segment consists of public charter schools, private schools, and early childhood education centers.

The neat thing about EPR’s strategy is that it focuses on some highly enduring real estate segments. In particular, movie theaters, golf courses, and schools provide an experience rather than just sell a physical product. As a result, operators of these real estate properties can remain in business even as consumers move from brick-and-mortar stores to e-commerce platforms.

Just take a look at the company’s portfolio occupancy and you’ll see what I mean. While REITs focusing on retail properties are experiencing headwinds from e-commerce, EPR’s business is doing just fine. As of March 31, 2019, the company boasted 99% occupancy in entertainment properties, 100% occupancy recreation properties, and 98% occupancy in education properties.

EPR’s strategy has paid off in the long run, too. From EPR stock’s inception in 1997 to the end of the first quarter of 2019, the company has delivered total shareholder return of 1,838%, substantially outperforming the MSCI U.S. REIT Index’s 532% return and the Russell 1000 Index’s 369% return during this period. (Source: “Investor Presentation,” EPR Properties, last accessed May 8, 2019.)

With the growth momentum continuing in EPR Properties’ business, it might not be too late to get on of the profit train. And even though EPR stock could remain volatile, its growing monthly dividends provide a good enough reason for income investors to consider it.

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