A Top Stock for Dividend Growth Investors
In the stock market, investors usually have to choose either a high current payout or future growth. Today’s high-yield stock, however, manages to offer both.
The company in question pays quarterly dividends with an annual yield of five percent. That’s a pretty solid number considering that the average S&P 500 company is yielding less than half of that.
Moreover, this high-yield stock promises bigger payouts in the future. Right now, the company is targeting a distribution growth rate of between five percent and eight percent every year.
The company in question is Brookfield Property Partners LP (NYSE:BPY). It came to existence as a spin-off from Brookfield Asset Management Inc. (NYSE:BAM) in 2013. Brookfield Property trades on both the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol BPY.
As the name suggests, Brookfield is in the real estate business. But unlike most real estate companies, it is not structured as a real estate investment trust (REIT). Instead, it is organized as a limited partnership. And that’s one of the reasons why BPY stock is overlooked by many REIT investors.
Despite not having the REIT structure, the partnership’s asset quality rivals some of the biggest players in the real estate business. Brookfield’s core office assets include 146 office buildings located in gateway cities such as New York, London, Los Angeles, and Sydney. These properties total more than 100-million square feet.
On the retail side, the partnership owns an interest in 100 of the top 500 malls in the U.S. Its current portfolio of 127 best-in-class malls and urban retail properties total more than 125-million square feet.
Stable Cash Flows
For any high-yield stock to be worth owning for income investors, it must be able to offer a level of dividend safety. In the case of Brookfield Property Partners, the generous distributions are backed by stable cash flows.
Brookfield’s business is very easy to understand; it invests in properties and collects rent from tenants. Right now, 92% of the partnership’s office portfolio is leased, with an average lease term of eight years. Moreover, these properties have an embedded 17% market-to-market opportunity when the leases expire.
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In the retail segment, Brookfield boasts a 95% same-property occupancy rate. The properties are leased to highly productive stores, with the average tenant generating $591.00 of sales per square foot.
With its high-quality portfolio bringing in predictable cash flows, Brookfield is able to pay steadily increasing dividends. The partnership’s first quarterly distribution was $0.25 per unit in September 2013. Today, the amount has grown to $0.295 per unit. (Source: “Distribution History,” Brookfield Property Partners LP, last accessed August 16, 2017.)
BPY stock is making more than enough cash to cover its payout. In the first half of this year, the partnership generated funds from operations (FFO) of $0.70 per unit while paying $0.59 of distributions per unit. That translated to a payout ratio of 84%. (Source: “Brookfield Property Partners Reports Second Quarter 2017 Results,” Brookfield Property Partners LP, August 2, 2017.)
The Best Could Be Yet to Come
Going forward, the partnership expects its FFO per unit to grow at an annual rate of eight to 11%. If Brookfield achieves this target, it will have no problem further increase its payout.
So for investors of this high-yield stock, the best could be yet to come.