Is EastGroup Properties' Recent Dividend Hike Sustainable?

EastGroup Properties (NYSE:EGP) recently announced that its board of directors’ approval of a 4.2% increase in the company’s quarterly dividend to 75 cents.

The company will pay the raised dividend on Oct 15, to shareholders on record as of Sep 30, 2019. Further, based on the increased rate, the annual dividend comes to $3 per share, up from the prior annual rate of $2.88 per share, leading to an annualized yield of 2.4%, considering EastGroup’s closing price of $123.96 on Aug 29.

Solid dividend payouts remain the biggest enticement for REIT investors and EastGroup remains committed toward boosting shareholder wealth through these dividend hikes.

Impressively, EastGroup has hiked its dividend payouts, in each of the last eight years, the recent one also marking the company’s 159th consecutive quarterly distribution to shareholders. Further, EastGroup has increased or maintained its dividend for 27 consecutive years.

Can EastGroup Maintain its Payout?

EastGroup’s ability to sustain the hiked dividends depends on funds from operations (FFO) growth and payout ratio. The company’s current payout ratio is nearly 61%.

Additionally, the company’s performance depicts a robust FFO picture. Over the next five years, FFO is projected to grow at a rate of 4.8%. As for the ongoing year, favorable estimate revision reflects an upbeat outlook for the company. In fact, the Zacks Consensus Estimate for 2019 FFO per share was marginally revised upward over the past month to $4.92, indicating year-over-year growth of 5.35%.

Moreover, EastGroup has an investment-grade balance sheet and enjoys a favorable credit rating of Baa2 from Moody’s. The company’s well-leased industrial portfolio enjoys a solid presence in the Sunbelt region, which, in turn supports the credit rating.

Furthermore, EastGroup’s focus on higher value-additive acquisitions and higher development starts will likely be conducive to its bottom-line expansion, thus, enabling the company to sustain its current hiked dividends.

Bottom Line

We believe such disbursements highlight the company’s operational strength and commitment toward rewarding its shareholders handsomely. The hike reflects EastGroup’s ability to generate solid cash flow growth through its operating platform and high-quality portfolio.

Lastly, as investors prefer an income-generating stock, solid dividend payouts are arguably the biggest enticement for REIT investors. Needless to say, investors are always on the lookout for companies with a track record of consistent and incremental dividend payments to put their money on.

Shares of this Zacks Rank #2 (Buy) company have rallied 12%, outperforming the industry’s growth of 6% over the past three months.

Top Picks

OUTFRONT Media Inc. (NYSE:OUT) currently sports a Zacks Rank of 1 (Strong Buy). The Zacks Consensus Estimate for 2019 FFO per share has been revised marginally upward to $2.34 over the past week.You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexandria Real Estate Equities, Inc. (NYSE:ARE) holds a Zacks Rank of 2, at present. The Zacks Consensus Estimate for the current-year FFO per share remained unchanged at $6.98 in the past month.

Extra Space Storage Inc (NYSE:EXR) is another Zacks #2 Ranked company, presently. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward to $4.86 in a month’s time.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>