This Elite High Yield Dividend Stock Is Making Smart Moves to Take Advantage of High Interest Rates

Real estate income (ABOUT 0.97%) has a unique path dividend increase record. The real estate investment trust (REIT) has increased its payout for 107 consecutive quarters (and 126 total) since going public in 1994. During that time, it has increased its monthly dividend by a solid 4.3% compound annual rate.

One of the driving factors REITs constant dividend increase is its ability to continue to grow its portfolio. While higher interest rates make it harder to find accretive equity investments, Realty Income has taken advantage of the situation, I’m starting to invest in real estate loans. This move could pay big dividends in the future.

Giving honor to those to whom it is due

Realty Income made $805.8 million in new investments in the second quarter. The largest was a $377.5 million senior secured bond issued by the parent company of British grocer Asda. The credit investment has an 8.1% yield over six years. That’s higher than the yield the company would get on its equity investments in real estate (an average of 7.9% on acquisitions and 7.3% on developments). The REIT took advantage of higher interest rates to secure a high cash yield Very stable credit investment.

This investment contributed to the development of the company’s credit platform, which one is that launched last year. Realty Income made its first credit investment in August last year. It agreed to acquire a yield (8.1%) preference shares participation in a joint venture (JV) with Black stone‘S Unlisted REITwhich owns The Bellagio Las Vegas. The REIT also made $300 million common equity investment in this JV. The transaction enabled Realty Income to make its second investment in gaming properties.

CEO Sumit Roy commented activation its credit investment strategy in a press release revealing the Bellagio investment:”Credit investments are a natural complement to our traditional business, allowing us to offer additional value to our clients while leveraging our core competencies in sourcing and structuring transactions, AND “Real Estate and Loan Evaluation and Monitoring.”

Real estate income in fact $858.1 million in credit investments (real estate-backed loans and preferential equity investments) last year at an 8.7% yield. This rate was significantly higher than the initial yield it expects to earn on equity investments (7% for acquisitions and 6.8% for development projects).

Opening doors to future opportunities

Real estate income I don’t plan become REIT mortgage focused on credit investments. He is taking advantage of the current opportunity to make these investments due to the interest rate environment. Roy discussed the company’s credit strategy at conference call in the second quarter:

We intend to continue credit investments selectively, and only when can ultimately make it easier access to high-quality real estate, as was the case with Asda. We also believe in these Credit investing provides a cost-effective way for Realty Income to participate in and benefit from the current interest rate environment. Moreover, from a risk management perspective, we view these credit investments as a prudent, natural hedge against the risk of falling interest rates. How we have on the liabilities side of our balance sheet.

The CEO highlighted three factors driving the credit investment strategy. First and foremost, it will help open the door to future property acquisition opportunities. For example, the company could eventually acquire its JV partner’s stake in Bellagio when it is ready to exit the asset. In the meantime, it has strengthened its relationship with Asda, its 11th largest tenant. That could put the REIT in a better position to acquire additional properties from that partner in the future. sale and leaseback transactions.

Credit investing also allows REITs to benefit from the currently lucrative environment of higher interest rates. Although higher interest rates have caused harder to find attractive opportunities for capital investments, credit investments are currently tempting.

Finally, investing in loans when interest rates are high will help mitigate some of the risk associated with higher future interest rates on maturing debt. In a certain sense, could offset some of the impact of higher future borrowing costs by blocking higher-yielding investments now.

A smart strategy

Realty Income is a smart investor. The company focuses its efforts on finding investments that help increase dividends. Currently, credit investments are very attractive, which is which led REITs to focus on this strategy. It could pay large dividends in the future, providing lucrative income streams, new investment opportunities and balance sheet security. This is one of many reasons Why Income from real estate is great dividend stocks to buy in the long run.