Kimco Realty Corporation (NYSE: KIM) has been experiencing a surge in its stock price since July, indicating a renewed interest from passive income investors in shopping center-focused real estate investment trusts. With a growing net operating income and funds from operations, as well as strong lease metrics in terms of occupancy and rents, Kimco Realty is positioning itself as an attractive option for investors seeking stable returns.
High Quality Dividend Yield and Growth Potential
Kimco Realty offers passive income investors a high-quality 4.2% dividend yield with a high margin of safety, thanks to a payout ratio of just 60%. The trust also has significant potential to grow its dividend moving forward, making it an appealing choice for those looking for reliable income streams.
In the past, Kimco Realty has shown strong lease activity, net operating income growth, and funds from operations growth, all of which supported a “Buy” rating. The trust recently revised its forecast for FFO upward and is poised to announce a dividend hike soon. With double-digit growth in funds from operations, driven in part by acquisitions, Kimco Realty is well-positioned for future growth.
Well-Leased Shopping Center Portfolio with Growing Rents
Kimco Realty owns and operates a portfolio of 567 U.S. shopping centers and mixed-use properties, totaling 101 million square feet of gross leasable space. The trust saw a 13% increase in sales to $500 million in the second quarter, driven by the acquisition of RPT Realty earlier in the year. Additionally, rental growth has been a significant catalyst for Kimco Realty’s funds from operations, with rents increasing by 11% over 2020 base rents.
Occupancy Metrics and Funds from Operations Growth
In the second quarter of 2024, Kimco Realty achieved a portfolio occupancy rate of 96.2%, nearing its previous occupancy high. The trust generated funds from operations of $276 million, up 13% year-over-year due to the acquisition of RPT Realty. With a low dividend payout ratio based on funds from operations, Kimco Realty has one of the best dividend coverage ratios in the REIT industry.
Dividend Pay-Out Ratios and Yield
Kimco Realty’s dividend payout ratio stands at 59%, based on the trust’s earnings of $0.41 in funds from operations compared to a $0.24 per share dividend. The trust raised its dividend in October of last year and is expected to further increase it in October 2024. With a potential dividend hike to $0.25 per share per quarter, Kimco Realty’s annualized payout could reach $1.00, representing a 4.2% increase.
Guidance and Future Growth Potential
Kimco Realty raised its funds from operations forecast for the year, citing expectations of strong lease activity and high portfolio occupancy. At a current stock price of $23.11, the trust is selling for 14.4 times this year’s estimated FFO. With the potential for strong FFO growth, particularly through acquisitions, Kimco Realty could see a rerating in the future.
Potential Risks and Conclusion
While Kimco Realty’s grocery-anchored shopping centers provide steady foot traffic, slowing rental growth and the risk of an economic recession could impact the trust’s performance. However, with a well-leased portfolio and potential for dividend growth, Kimco Realty remains an attractive option for passive income investors seeking stable returns.
In conclusion, Kimco Realty’s stock price has been on the rise, reflecting the trust’s strong fundamentals and growth potential. With a focus on high-quality dividends and growth opportunities, Kimco Realty is a compelling investment option for passive income investors looking for stable returns in the real estate sector.
