Dividend Analysis
American Finance Trust recently declared its monthly payments for July, August and September at a rate of $0.0708333 per common share. That works out to $0.85 per share on an annualized basis, which is good for a current yield of nearly 11%.
That’s impressive, and certainly a sizable draw for income investors, particularly given the monthly payments instead of quarterly. However, American Finance Trust cut its distribution for the second quarter from a prior annualized level of $1.10 per share. That’s a sizable cut, but investors should keep in mind that many REITs have slashed their payouts down to token levels, or ceased them altogether because of COVID-19.
We expect the trust to earn at least $0.90 per share in FFO this year, taking into account that Q2 results will be substantially weaker than normal. That means that the new dividend of $0.85 per share should be sustainable not only for this year, but next year as well. Indeed, we expect to see at least $1 in FFO per share next year as American Finance Trust can get back to its former growth track.
With stable tenants and a full pipeline of acquisitions, we think the current dividend is safe. The primary risk to this is a second wave of widespread economic shutdowns due to COVID-19, which could send the trust’s tenants into default. We don’t see this as particularly likely at this point, but American Finance Trust is a high-risk, high-reward situation.
Final Thoughts
We like American Finance Trust’s tenant base, its stable earnings profile, and its very high dividend yield along with monthly payments. We note that there is still some uncertainty surrounding potential shutdowns to come due to COVID-19, but we expect the current dividend to be safe for the time being.
With a nearly 11% yield, this stock is quite attractive to income investors, and it is still trading at just half the level of its pre-crisis highs, meaning the value proposition is much better than it was as well. The high yield is attractive, but as is typical with extreme high-yielding stocks, there is a higher level of risk.
