3 REITs to Buy BEFORE They Hike Their Dividend!

Hey, this is Yoshi Avanos, a small investment firm that specializes in rate investing. And over the past weeks, I've shared many rates that I expect to cut their dividends in the near term. A lot of rates today are overleveraged, poorly managed, and on risky assets like hotels, malls, or even offices, which are facing serious headwinds. Today, we switch our focus to rates that we expect to hike their dividends in the near term. These are obviously much better investment opportunities. And note that I'm not going to discuss the obvious dividend growers here, like Realty Income, Vichy Properties, and NNREIT. Instead, I'm going to focus on rates that I think will surprise the market with a dividend hike. And as a result of this positive surprise, they could also enjoy significant upside potential. Some of these rates, we already own them in our portfolio at HighEnd Landlord. Others, we hold high on our watch list. If you want to access our full portfolio in real time, you can join us for a two-week free trial. It will be the first link in the description of this video. Okay, so the first company I'm going to discuss here is called Stagg Industrial, ticker symbol STAG. This one will likely come as a surprise to many of you because this rate has been criticized for years for its very slow dividend growth relative to its close peers. But the reason why I want to discuss it in this particular video is because I expect this to change soon and its dividend growth to greatly accelerate. And to understand why, I think it's important to know the context here. Stagg Industrial went public in 2011. It initially owned a portfolio that was heavily focused on secondary and tertiary markets, a lot of value-add properties, all the properties. It had more leverage than its close peers. It also had a high dividend payout ratio, which left Lille retained cash flow to organically reinvest in growth. And as a result of this, it was commonly perceived to be a lower quality industrial rate, which caused it to trade at a steep discount relative to its close peers, like Prologist, First Industrial, Rexford, Eastwood Properties, and so on. To unlock value, the management then decided to start a capital recycling program, selling a lot of its weaker assets in secondary markets or all the properties with limited upside, in order to reinvest in stronger and newer properties in primary markets, in order to close the quality gap to its close peers, all while deleveraging its balance sheet. Meanwhile, its rents also kept on growing and the REITs could have hiked its dividend, but intentionally kept the dividend hikes very small in order to gradually reduce its payout ratio. So this explains why the REIT enjoyed such slow dividend growth ever since it went public. But it's important to note today that this transformation is now mostly complete. The REIT now owns a much better portfolio. It has lower leverage, lower payout ratio as well. And as a result, we expect things to change going forward. I'll put a table on the screen comparing Stagg of 10 years ago to today. And you'll see there that the REIT is now of much higher quality. It retains much more of its cash flow. It has better liquidity, lower leverage, stronger properties. And so this should allow the REIT now to accelerate its dividend growth going forward. I actually got to meet the CFO of the REIT at a conference back in 2023. Already back then, he was telling me that this was the plan all along. They wanted to improve the quality of the portfolio, lower the leverage and the payout ratio. And that then as the growth accelerates, they would start increasing their dividend at a faster pace as well to close the valuation gap to their close peers. Based on our conversation back then, I thought that this acceleration will already occur in 2024 or 2025. Yet we're still waiting. And I think that the reason why we had an additional delay is because interest rates then surged, the cost of capital went up. And as a result, they likely wanted to retain more of their internal cash flow to keep reinvesting in growth. And now the debt market is predicting significant rate cuts already in the near term. Mortgage rates have also already come down quite a bit. And therefore, I think that this acceleration now is likely to happen at any time. And once they announce their first significant dividend hike, I think that this will serve as a strong catalyst for the stock, given that stocks still trade at a significant discount relative to its close peers. Again, I'll put a table on the screen comparing its valuation to its peer group, and you'll see that the gap is very significant. It seems that the market has overlooked the transformation and the rates went through in recent years. And this explains why it keeps pricing it at such a steep discount. But as the dividend growth accelerates in line to its peer group, I think that this will cause investors to finally wake up and notice that the quality difference is not that big anymore. And therefore, stocks should trade at a more comparable valuation. I think that some discount will persist, but even then it could still rise by 20% to 30% from here, while you wait, you're earning a near 4.5% dividend yield, and we expect the rate to keep growing its value by 5% to 7% per year over the long run. Therefore, just between the dividend and the growth, investors can expect to earn roughly double digital returns, add some upside to that, coupled with the near-term catalyst of a dividend hike. And I think that we have a very attractive race to reward. For this reason, we are closely monitoring this rate and may invest in it in the near future. Hey, before going to the second rate, can you please do me a huge favor and click the like button? That will help me a lot to keep on growing. Thanks so much in advance. The second rate for this video, I've discussed quite a few times on this channel. Even then, it may still surprise you because yielding so much, and yet I still expect it to hike its dividend. It's called New Lake Capital Partners, ticker symbol NLCP. It's today offering a 12% dividend yield, typically rates that are offering such high yields a price to cut their dividend in the near term. Typically, the high yield is a red flag. It typically signals that the rate is overleveraged on risky assets, suffers conflicts of interest, and is likely to cut its dividend. But I think that New Lake is an exception here. And to be clear, it does own risky assets. It focuses on cannabis cultivation facilities, which is a riskier segment of the commercial real estate market. But even then, I think the dividend is safe and likely to keep growing in the near term. I got to talk with the CEO of the rate earlier this year, and we then shared an exclusive interview for the members of High Yield Landlord, which by the way, again, you can access with the two-way free trial, link in the description. Back then in the interview, one of the main highlight for me was that their targeted payout ratio range is 80 to 90%. Yet today, their payout ratio is just 79%, so it's below the lower end of their target. This prompted the chairman of the rate to say the following on their most recent earnings call. We're pleased with our second quarter results as New Lake delivered solid performance in a challenging cannabis landscape. Our second quarter dividend of 43 cents per share represented an FFO payout ratio of 79%, just below our targeted range. Our portfolio has remained resilient through a difficult period for the cannabis sector. So what the chairman is doing here is that he is emphasizing the fact that their current payout ratio is below their targeted range. And so to me, this signals that they are likely to hike their dividend in the near term. And I think that this is especially likely given the track record of the rate. They've hiked their dividend in every year since going public, sometimes a few times in a single year. And therefore, I think that they are likely to hike it once again in the near term in order to preserve this dividend growth track record. Yes, this is a risky property sector and this explains why the yield is so high. But I think that the market has priced the rate at excessive risk premiums. I think that the risks are not quite as high as the market seems to believe, given that the rate is in a very unique situation with no leverage, significantly net cash positives. It also enjoys 2.6% rent escalations in its leases. Most properties are in limited licensed states where the demand for cannabis keeps on growing but the supply is limited by licenses. Rent coverage ratios are quite high. And finally, yes, the rate retains over 20% of its cash flow to keep reinvesting in growth. And remember that when you retain 20% of your cash flow and you're buying properties at 14% cap rates, that's the equivalent of retaining 40% of your cash flow to reinvest in properties at 7% cap rates. So this retained cash flow getting reinvested is extremely accretive to its FFO per share. And so I think that all of this provides good margin of safety in case the rate suffers occasional lease defaults as it has in the past. The reality is simply that the cannabis and REIT sector are today out of favor. They've been in the multi-year bear market and this explains why the valuation of the rate is so low. But as the rate keeps proving the market wrong and hikes is even once again, I think that it could enjoy very significant upside given that it's today trading at its lowest valuation ever at just about six and a half times FFO. This is of course riskier pick than stag industrial but I think it's very attractive for investors that have a higher risk tolerance and are seeking high yields. And for this reason, we own it in our core portfolio at High Yield Landlord. Finally, the third company I want to discuss here is called Patria Investments, secure symbol P-A-X. This company is not officially structured as a REIT but it is what we like to call a REIT adjacent business in that it's a REIT asset manager. It's essentially the Blackstone of Latin America. It's an alternative asset manager with a significant REIT management business. So it's earning fees for managing a bunch of different REIT vehicles. So far, this company has had a pretty poor track record of dividend growth and this is why I expect this anticipated dividend hike to positively surprise the market and likely to lead to quite a bit of upside. For context here, the company, when it went public, it initially decided to follow a variable dividend policy similar to that of Blackstone, which is to distribute 85% of its fee-related income to its shareholders. This dividend policy of distributing most of it to shareholders was fine as long as interest rates were low and its own cost of equity was modest which allowed it to issue more shares, raise some debt to close new acquisitions. But as interest rates surged and its equity valuation crashed, the REIT decided to cut down its payout ratio to a lower level, putting at 60 cents per share on a yearly basis in order to retain more of its cashflow to organically acquire and finance its new acquisitions. So that's what the company did. They set their dividend at 60 cents per share and has kept it there now for a few years which has disappointed dividend growth investors who have gotten used to steady dividend growth from similar companies in its alternative asset management peer groups from companies like Blue Wall Capital which are steadily hiking their dividend. So this has hurt the market sentiment of Patria. But I expect things to now change in the near term because it's become very clear to the management of the company that this dividend policy is depressing the market sentiment and this is clearly not in their best interest as they would like to reach a cost of equity that allows them to issue new shares to close new acquisitions moreover the management owns over 60% of their company. They're the biggest shareholder. So clearly it's not in their interest to have a low market sentiment. Finally, the deleveraging is now done. So the initial purpose of keeping a low payout ratio is not really there anymore. They don't need to deleverage further. On the contrary, they've now essentially reloaded the gun. They are ready to close new acquisitions. And I think that as they announced this new dividend policy of steady growth, something more similar to what Blue Wall Capital is following, the valuation of the company could surge to much higher levels given that it's today still trading at a steep discount to its close peers, despite having lower leverage and growing at a faster pace in many cases. I'll put a table on the screen again comparing its valuation to some of its close peers and you'll see there that it doesn't even have to close the gap in order to enjoy significant upside. While you wait, the company is paying you a 4% dividend yield, which again is likely to reach a higher level as they hike this dividend. And meanwhile, the company is expected to keep growing its peer-related income per share by 15% annually over the next three years. This is the official target of the company. And so far, they've under-promised and over-delivered, which makes me quite confident in the future prospects. The biggest gains in dividend growth investing are earned by identifying future dividend growers ahead of the crowd. And that's how you can set yourself up for large gains as these companies surprise the market, hike their dividends, and reach higher valuations. That's exactly what we aim to do at High Yield Landlord. And if you want to access our full rate portfolio, you can join us for a two-week free trial by using the first link in the description of this video. Once more, if you could please do me a huge favor and click the like button, subscribe to your channel, it helps me a lot to keep on growing. Otherwise, let me know in the comment section below what rates I should cover next. Thanks so much and see you at my next one. Bye-bye.