Venturing off the conventional path and exploring lesser-known niche markets can often prove to be a highly rewarding investment strategy. Take, for instance, manufactured home communities—these have consistently shown themselves to be one of the most resilient property classes for investors over the years. The enduring demand is mainly driven by housing affordability challenges and the sheer inconvenience and cost associated with relocating a manufactured home.
Two frontrunners in this niche are Sun Communities (SUI -3.03%) and Equity LifeStyle Properties (ELS -3.91%). These leaders in manufactured home communities and other specialized property areas have established robust strategies that have allowed them to offer attractive dividends to their investors. These dividends have steadily grown over time. Here’s a comparative glance at these residential real estate investment trusts (REITs) to help you decide which might be the better pick for dividend income currently.
Key Players in Resilient Real Estate Ownership
Sun Communities stands as the largest publicly traded owner and operator of manufactured housing communities, boasting ownership of 288 properties with a total of 97,000 sites. Their portfolio also includes 179 RV communities providing 59,000 sites, including 34,000 annual ones, as well as 138 marina locations with a capacity for 49,000 wet slips and dry storage spaces. In the UK, they’re also the second-largest owner/operator of holiday parks with 54 parks comprising 18,000 manufactured home sites plus 4,000 transient sites. Collectively, they oversee roughly 660 developed properties with over 179,100 developed sites across the U.S., Canada, and the U.K., apart from their extensive marina spaces.
Equity LifeStyle’s portfolio, although slightly more modest, is still impressive with over 450 properties spanning across 35 states and one Canadian province, totaling more than 172,850 sites. This includes 203 manufactured home communities with 75,000 sites, 226 RV resorts with 91,000 sites including 34,000 annual, and 23 marinas offering 6,900 slips.
The net operating income (NOI) generated by these niche properties is incredibly resilient. For instance, Equity LifeStyle has managed to grow its same-property NOI by an impressive 4.4% annually since 1998. This figure surpasses the REIT sector’s average of 3.3%, largely because their properties tend to perform strongly during economic downturns, without witnessing any quarters of negative NOI growth.
Sun Communities mirrors this income stability, with a 5.2% compound annual growth rate in its same-property NOI since 2000, outpacing the REIT sector’s 3.2% average. They’ve reported positive NOI growth consistently for every year and each rolling four-quarter period for the past 20 years.
Exploring Their Dividend Details
The solid income these REITs generate allows them to offer dividends with attractive yields. Currently, Equity LifeStyle yields 2.8% while Sun Communities offers a slightly higher yield at around 3%. These figures considerably surpass the S&P 500’s dividend yield of 1.2%.
Sun Communities pays out a quarterly dividend of $0.94 per share, amounting to $3.76 annually. They anticipated generating between $6.76 and $6.84 per share in core funds from operations (FFO) last year, resulting in a dividend payout ratio of about 55%, a relatively conservative figure for a REIT. On the other hand, Equity LifeStyle distributed $1.91 per share in dividends last year, with reported normalized FFO at $2.91 per share. This results in a payout ratio of around 65%.
A recent increase in Equity LifeStyle’s dividend gave investors a 7.9% boost compared to the previous year. In contrast, Sun Communities’ latest hike in February was a modest 1.1%. This pattern highlights Equity LifeStyle’s consistent track record of faster dividend growth compared to Sun Communities:
ELS Dividend data by YCharts.
Both REITs maintain investment-grade balance sheets, although Equity LifeStyle possesses stronger financial metrics. It maintains a leverage ratio of 4.6 times, compared to Sun Communities’ 6.0 times. This affords Equity LifeStyle greater financial agility to expand its portfolio and further increase its dividends.
Positioned for Greater Growth
While Sun Communities presents a higher dividend yield supported by a slightly lower payout ratio, Equity LifeStyle’s more robust balance sheet has allowed for more rapid dividend growth than its competitor. This makes it the more compelling dividend stock for long-term investment. It positions investors to potentially enjoy higher total returns and increased income over time as it continues to elevate its payouts at an accelerated rate.
