Is EastGroup Properties' Recent Dividend Hike Sustainable?
Zacks Investment Research | Aug 29, 2019 09:05PM ET
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 Zacks Investment Research
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