Office Properties Income Trust: 7% Payout From Uncle Sam
Office Properties Income Trust Pays a Safe 7% Yield
Another year is on the books and another record dividend is on the way from this company.
As longtime readers know, inclusion in my Income Investors column is reserved for safe, profitable businesses that return a large portion of their earnings as dividends each year. And Office Properties Income Trust (NASDAQ:OPI) is one such business.
This investment trust leases out 200 properties totaling more than 27.3 million square feet, mostly to the public sector. (Source: “Investor Presentation January 2020,” Office Properties Income Trust, last accessed January 16, 2020.)
The partnership’s tenants include the U.S. Government, the State of California, the State of Georgia, and the Commonwealth of Massachusetts. Management supplements this income further by renting out properties to various corporations, including government contractors like Northrop Grumman Corporation (NYSE:NOC).
Investors can make a fortune in this type of real estate; office properties can be far more profitable than apartment buildings.
The secret comes down to a particular characteristic of this business: the renters.
Nowadays, apartment landlords jump for joy if a tenant signs a one-year lease. Few apartment renters, however, can commit to much longer than that. Even then, you always have the worry of late payments and property damage.
Commercial landlords don’t waste their time with short-term deals. Typically, Office Properties Income Trust signs new tenants up to 10- or 20-year lease agreements. That means management can circle the dates on the calendar years in advance for when they’ll get paid.
Office properties also tend to come with more stringent payment conditions. Office tenants, not the landlord, have to pay for repairs, maintenance, insurance, and property taxes. So almost every dollar paid in rental income goes straight to the bottom line.
Moreover, leases often come with rent hikes baked into the contract.
Apartment landlords often face regulations or political backlash when raising rents on families. Commercial properties, however, don’t have this problem. Rents automatically increase each year, typically around two or three percent per annum.
But here’s what sets Office Properties Income Trust apart. By focusing on government buildings, the partnership has secured the best, most dependable renters around. None of these tenants are likely to “go out of business” anytime soon.
So unitholders can count on a steady stream of rent checks through wars, recessions, and flash crashes.
This has created a lucrative income stream for investors. Since going public in mid-2009, Office Properties Income Trust has mailed out a distribution check every single quarter. Even during the financial crisis, executives managed to boost the payout.
Today, the trust’s quarterly payout comes out to $0.55 per unit, which amounts to an annual yield of about seven percent. While executives haven’t officially declared their next distribution yet, management typically makes their first payment of the year in February.
So if you’re looking to earn safe, high yields, why not consider making Uncle Sam pay you seven percent a year?