If you like dividend stocks and can handle a little risk in your portfolio, EPR properties (NYSE: EPR) is a stock you’ll want to dive into right now. If you wait until tomorrow, you could miss the opportunity that is presented to you today. While not for the faint of heart, the 7.7% dividend yield here is probably less risky than it seems. Here are three reasons to give EPR Properties a chance as it works to turn its business around.
The big story surrounding EPR Properties goes back to the early days of the coronavirus pandemic, when non-essential companies were closed. This real estate investment trust (REIT) owns properties that bring people together in groups (think amusement parks), so most of its tenants were locked out during that period. In order to ensure sufficient liquidity to survive and, at the same time, help its tenants survive, EPR Properties suspended its dividend for just over a year.
It was the right decision for the business, even if it was probably hard for investors to swallow. It would be understandable if conservative dividend investors I didn’t want to touch this stock with a 10 foot pole. But the dividend returned in the second half of 2021 and has now been increased threefold. Although the monthly dividend is still below pre-pandemic levels, EPR Properties has proven that it is back to rewarding investors with a growing income stream. If you can handle a little risk in your portfolio, that fact alone makes it worth a closer look.
EPR Properties’ Q3 2024 adjusted funds from operations (FFO) payout ratio was a solid 66%. This is a very reasonable figure in the REIT sector. This suggests there is plenty of room for downside before the dividend would be at risk of a cut.
However, EPR Properties is still working on its business turnaround. There is the possibility of more bad news. Adjusted FFO for the third quarter of 2024 was $1.29 per share, down from $1.47 a year earlier. During the first nine months of 2024, adjusted FFO was $3.61, compared to $4.07 in the first nine months of 2023. Additionally, adjusted FFO in the third quarter increased from $1.20 in the second quarter of 2024 and 1 .12 in the first quarter. So the trend seems to be going in a positive direction.
Combine that fact with the payout ratio, and it appears that EPR Properties’ dividend may not be as risky as some investors may fear.
The portfolio of EPR Properties is a tale of “a tale of two cities”. Approximately 64% of the portfolio improved from pre-pandemic results. The rent coverage of this part of the portfolio has increased from 2.0x in 2019 to 2.6x today. That is very good news. But the remaining 36% of the portfolio, which is all cinemas, has rent coverage of 1.5x compared to 1.7x before the pandemic. This is not good news.
