CTO Realty Growth's Dividend Hike Leads to an Attractive 7.3% Yield

CTO Realty Growth (CTO), a Florida-based real estate investment trust (REIT) recently raised its quarterly dividend. On Aug. 22, CTO announced that the REIT had increased its quarterly cash dividend to 38 cents per quarter. That gives it an annualized dividend of $1.52 per share. At $20.73 on Monday, Sept. 12, this now gives the stock a very attractive 7.33% dividend yield.

That makes this national income REIT a very attractive investment vehicle. Moreover, it seems clear that the REIT can clearly afford to pay this dividend.

Cash Flow Growth Funds the Dividend

For example, on July 28, the company released its Q2 financials indicating that its core funds from operation (FFO) was $1.41 per share and its adjusted FFO (AFFO) came in at $1.48. Although this is lower than the $1.52 annualized dividend on a run-rate going forward basis, it appears that the company's Q3 numbers will be substantially higher.

The reason is the company announced a 1.8% increase in its dividend due to its cash flow. Here is what CTO said:

“The Common Stock Cash Dividend is being increased to account for the Company’s strong year-to-date cash flow growth and the need to distribute a certain amount of taxable income to maintain its REIT tax status.”

Moreover, the company said that this represents a 14% growth in the dividend in the past year. This implies that the company's Q3 numbers should continue to show significant growth.

Where This Leaves Investors In CTO Stock

One of the good things about CTO Realty Growth is that it owns a 23.5% stake in another public REIT called Alpine Income Property Trust (PINE). PINE has a market value of $247 million compared to CTO's market capitalization of $372.6 million. So CTO is the larger REIT and has the ability to influence the dividend decisions at PINE.

PINE now pays a healthy dividend giving it a 6.0% dividend yield. This helps provide a stable base for the income streams to CTO.

Most of CTO's real estate investments are in mixed-use properties throughout the U.S., on a net lease basis. This allows the company to avoid having to pay lots of capital expenditure to maintain its properties. 
So the REIT seems to be weathering the U.S. recession for the past two quarters. So far consumer spending is strong and this has prevented many of its properties from failing as in the last major real estate recession. I suspect that we are near the bottom of the present downturn unless the Fed decides to drastically slow down the U.S. economy. As a result, it could be that we have seen the bottom for this stock.

This leaves this REIT stock with a stable and high 7.3% dividend yield with potential earnings growth in Q3. That makes it attractive to long-term investors and value buyers.
 

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