Vornado Realty Trust (VNO) raises dividend by 13% and dominates Manhattan.

vno

Vornado Realty’s (NYSE:VNO) dividend was increased by an impressive 13%.  Its overall yield is 2.68%. The firm started paying a dividend in 1993.  One item of note in examining the dividend information below is that Vornado decreased its dividend by 13.7% to 63 cents per share from 73 cents as a result of the spin-off of Urban Edge Properties in late 2014. However, this dividend when pooled with expected Urban Edge dividend, remained the same for the year.

Vornado Realty Trust is a publicly owned real estate investment trust, or REIT. The firm invests in the real estate markets concentrated in New York and Washington, D.C. Vornado also maintains properties in Chicago and San Francisco. The firm was previously known as Vornado Inc. Vornado Realty Trust is based in New York City.

Vornado Realty currently ranks 7th in dividend yield within the large cap Realty Development firms category. The quarterly dividend for the February payment will be $0.71 versus the prior year rate of $0.63 per share. Vornado Realty Trust does not qualify as one of our Top 100 Dividend Stocks.  (see below).

The dividend will be paid at the new higher rate on February 15, 2017, to shareholders of record at close of business on January 30, 2017. Vornado Realty is currently priced at $107.20. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
1/30/2017 0.71
11/3/2016 0.63
8/5/2016 0.63
5/6/2016 0.63
1/28/2016 0.63
11/6/2015 0.63
8/7/2015 0.63
5/8/2015 0.63
1/29/2015 0.63 spinoff
11/6/2014 0.661
8/7/2014 0.661
5/8/2014 0.661
1/23/2014 0.661
11/7/2013 0.661
8/8/2013 0.661
5/9/2013 0.661
1/24/2013 0.661
12/6/2012 0.906 special
11/7/2012 0.625
8/8/2012 0.625
5/10/2012 0.625
1/26/2012 0.625
11/9/2011 0.625
8/8/2011 0.625
5/5/2011 0.625
1/26/2011 0.625
11/8/2010 0.589
8/9/2010 0.589
5/6/2010 0.589
1/26/2010 0.589


Analysis of Vornado Realty is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 2.68% 182
Dividend Growth (3-7 year avg) -2.5% 377
Forward P/E 26.62 390
S&P Financial Rating BBB+ 200
Beta 1.00 125
Total Score 1,274

Additional Information; (adjusted for spinoffs)

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate FFO 2016 P/FFO Ratio 10 yr P/FFO Low 10 yr P/FFO High 5 yr low Yield % 5 yr max Yield %
2.68% 4.22%  3.56% 5.40 19.85 8.1 25.6 2.34% 4.12%

Final Analysis;

Positives;

  • Vornado Realty’s dividend yield is above that of the S&P 500 Index.
  • Vornado Realty has paid out a dividend consecutively for the past 23 years.
  • Vornado Realty maintains an investment grade rating of BBB+.

Negatives;

  • Vornado Realty’s current dividend yield (2.68%) is toward the bottom of its five-year average historical dividend yield.
  • Vornado Realty trades at a premium price and its long-term dividend growth rate is below its competitors.

Latest Earnings & Overall Analysis:

Vornado Realty issued its earnings data on October 31st. Vornado Realty reported third-quarter funds from operations (FFO) of $1.27 per share compared exceeding the consensus of $1.16. FFO for the quarter ended September 30, 2016 was $225.5 million compared to $236.0 million for the prior year’s quarter. For the quarter, the firm leased out 335,000 square feet at starting rents averaging $68.11 per square foot.  Almost half of the new leasing activity was in Penn Plaza. For Q3, the firm has a solid pipeline of new leases negotiation (560,000 square feet) along with 700,000 square feet in active contract opportunities.

Vornado has slowly become a pure-play New York REIT specializing in office space. It primary market is in Manhattan, where it owns premier buildings that attract top rental rates. Its newest project within Manhattan is its Hudson Yards Project. This adds 6.5 million square feet of office space.   Vornado bought the historic Otis Elevator Building on Manhattan’s far West Side to expand its office space to meet future demand in Manhattan. The purchase includes a 10,000-square-foot parking lot.  Vornado paid for the purchase with $80 million in stock.   Vornado is well positioned in New York City, with holdings in Penn Plaza, Hudson Yards, Times Square, and large holdings on 5th avenue.  In the smaller San Francisco portion of Vornado, the firm leased 72,000 square feet during the third quarter at its 555 California Street building at average starting rents of $90 per square feet.

With the spinoffs, Vornado is now devoted solely to New York. Especially after Vornado announced that its subsidiary, JBG Smith Properties, has filed preliminary paperwork with the US Securities and Exchange Commission for a planned spin-off of its Washington DC metropolitan area business into a new publicly traded REIT.  Vornado was once known for its industrial holdings in New Jersey. But now the firm has transformed into a $40 billion REIT, with 30 million plus square feet of New York City real estate. 

Overall, the firm is well positioned in Manhattan and maintains strong rental rates along with premium properties. Its latest 13% dividend increase is one of the highest in recent years, which should give investors’ confidence in management’s ability to rent out its new Hudson properties at premium prices. However, with the price of the stock rising from $68 to $107 a share in the past four years, the firm is now trading at historically high FFO multiples. Additionally, Vornado’s dividend yield has dropped from a high of 4.1% to 2.68% today with the new yearly dividend rate.

Based upon its high forward FFO and low historic yield, Vornado Realty Trust does not qualify as one of our Top 100 Dividend Stocks

Vornado Realty Trust Dividend Yield Historical Chart (Click to enlarge)

vno

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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