2 Durable Dividend Stocks on Sale Today

Photo: 401(k) 2013.

Steadily rising interest rates have been crushing the prices of real estate investment trusts, or REITs. For example, the largest REIT ETF, the Vanguard REIT ETF , has plummeted nearly 18% in just over six months. Over the same period, the broader market has drifted higher. However, non-mortgage REITs, like Public Storage and Realty Income , don't deserve to be punished this much.

Although a much-anticipated rebound in equity REIT prices hasn't yet come, I still believe equity REITs represent a fine opportunity to build income right now.

Consider for a moment the argument of NAREIT economist Brad Case. In this year's Washington-based NAREIT conference, Case argued that since 1995, REIT returns improved in 12 out of 16 periods in which rates were rising. This is because rising rates are also generally accompanied by a stronger economy. Investors today seem to have forgotten that, or are perhaps lumping equity REITs in with mortgage-backed security REITs.

In any case, even the highest quality equity REITs are now priced reasonably. In looking for REITs, investors now have the luxury of picking some of the most seasoned and consistent of trusts.

The Coca-Cola of real estate
Up until recently, dividend growth superstar Public Storage has remained above the fray. However, it has fallen by 14% in just the last few months.

Public Storage calls itself "The Coca-Cola of real estate," a lofty name to live up to. But it isn't just a catchy slogan. Like Coke, Public Storage is the No. 1 player in its industry because of its brand name. In a solid industry benefiting from "life events" such as moving, death, and divorce, Public Storage has grown its funds from operations, or FFO, almost every year since 1998.

Becoming a mature business, Public Storage has been on a warpath to raise its dividend as its free cash flow increases. Since 2010, the company has raised its dividend by double digits each year, including this one. With a dividend payout ratio of only 59%, Public Storage still has room to increase its dividend for at least three more years.

Why? Because the trust's organic growth continues to impress. So far this year, net operating income has increased by $86 million from a base of $460 million. Revenue from same-store facilities is up an impressive 5.5% this year. Public Storage is a consistent grower, and with a meaningful dividend yield of 3.75%, you should take a closer look.

The monthly dividend company
Second is a name that has been falling for a while now: Realty Income. When looking for a consistent REIT, few can match Realty's track record of 40-plus years of quarterly dividend hikes. Even with all the drama in the market recently, Realty's occupancy rate has never dropped below 94%.

There is also safety in its diversification. Realty is the landlord for over 2,000 retail stores in 49 states. Steadily moving to higher credit-quality tenants and away from stores serving low-income customers, Realty will be ready when 10-year Treasury rates surpass 3% and move on to 4%, which many experts believe will happen.

Right now, Realty Income has dropped to under 16 times FFO and now yields nearly 6%. Next year, Realty Income expects to grow FFO by between 5% and 8%. Much of this will depend on acquisitions, which can always be stymied by higher interest rates. If this happens, however, Realty Income will most likely see some FFO growth from same-store-rent increases.

Bottom line
REITs represent an opportunity for income investors right now. These two names are very consistent businesses, perhaps every bit as consistent as Coca-Cola or Procter & Gamble. Both have been cast into the discount bin by Mr. Market, but in the long run, the solid growth and consistency that both names provide will reward investors handsomely.

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The article 2 Durable Dividend Stocks on Sale Today originally appeared on Fool.com.

Casey Hoerth owns shares of Realty Income. The Motley Fool recommends Coca-Cola and Procter & Gamble. The Motley Fool owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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