Kilroy Realty (KRC): Undervalued REIT and 4.2% Yield

PUBLISHED Sep 1, 2022, 1:54:26 PM        SHARE

img
imgDividend Power Blog

The markets had a wild ride down on Friday (8/26/2022). The SPDR S&P 500 ETF (SPY) saw a 14-point drop, about a 3.4% decline in a single trading day. However, the SPY is still higher than its most recent lows. But there are still stocks that have not gone up with the market that are still undervalued, like Kilroy Realty Corporation (KRC).

Kilroy Realty is one company that I have been buying as it hit a support level at around $50. The chart below shows that the $48 – $50 level was once a support level for four different instances. That is why I bought shares near $50. The stock is still trading at ~$50.00 per share. Thus, Kilroy Realty is still undervalued at current levels, and the dividend yield is roughly 4.2%. We will discuss details about the company and the amount of undervaluation.

KRC chart

Affiliate

If you are interested in investing in stocks that pay dividends I recommend signing up for the Sure Dividend Newsletter* . It is a good value and one of the best dividend stock newsletters available. There is a 7-day free trial and grace period so it is risk free. The service provides top 10 stock picks each month with discussion of advantages, valuation, and risks. I highly recommend them and use their insights for my own stock research.

Overview of Kilroy Realty Corporation

Kilroy Realty Corporation (KRC) is a leading U.S. commercial real estate landlord and developer with a more minor residential operation. The firm operates in San Diego, Greater Los Angeles, the San Francisco Bay Area, the Pacific Northwest, and Austin, Texas.

At of the end of Q2 2022, Kilroy’s stabilized real estate portfolio totaled approximately 15.8 million square feet of mainly office and life science space, 91.4% occupied and 93.7% leased. Also, the company owns more than 1,000 residential units in Hollywood and San Diego, with a quarterly average occupancy of 93.7%.

In addition, the company had three in-process life science redevelopment projects with total estimated redevelopment costs of $115.0 million, totaling approximately 344,000 square feet. It also has four in-process development projects with an estimated investment of $1.8 billion, totaling about 1.9 million square feet of office and life science space. The in-process development and redevelopment office and life science space were 38% leased.

Kilroy's Growing Life Science Portfolio

Source: Kilroy Realty Investor Relations

KRC was down 37.7% since its high in March 2022, 22 weeks ago. The main reason for the stock price decrease has nothing to do with the company itself, as earnings grew 5% in 2021 and are expected to grow 18% in 2022. Instead, it has to do with the increase in interest rates, as this affected all REIT stocks in the market.

The current stock price of ~$50.00 (as of this writing) is right at the lower end of the 52-week range, between $49.17 and $79.06 per share. Thus, KRC is seemingly a stock in the right place to buy up shares where both the 52-week range and support line meet.

KRC Dividend History, Growth, and Yield

We will now look at KRC’s dividend history, growth, and yield. Finally, we will determine if it’s still a good buy at current prices.

KRC is considered a Dividend Challenger, a company that has increased its dividend for more than five years. In this case, KRC has increased its dividend for six consecutive years. In addition, KRC’s most recent dividend increase was 4%, announced in September 2021. Thus, we expect another dividend increase this September.

Dividend Yield

Additionally, according to Portfolio Insight* , KRC has a five-year dividend growth rate of about 6.9%, which is excellent considering how fast inflation has increased this year. Unfortunately, the 10-year dividend growth rate is lower at ~3.8%.

Something essential to note is that KRC continued to pay its dividend during the most challenging period in the last 100 years. Many businesses and industries cut or suspended their dividend payments during the COVID-19 pandemic. However, KRC continued to pay its dividend and even increased them. That is impressive and leads me to believe in the company’s strength, and that management is focused and committed to the dividend policy.

Dividend Yield

The company has an excellent dividend yield of around 4.2%, which is more than twice the S&P 500 Index’s average dividend yield, and the highest in the past decade. This dividend yield is a respectable one for dividend growth-driven investors. This dividend yield is also appropriate for investors leaving the bond market looking for higher yields. However, it may not be an excellent stock for income investors who may want a 4.5% yield or greater. However, with the company’s growing dividend, I can see over a 5% yield on cost (YOC) in the next 5 to 7 years.

Dividend Yield History KRC

Source: Portfolio Insight*

KRC’s current dividend yield is higher than its own 5-year average dividend yield of ~2.84%. I like to examine this metric because it provides a good idea if a company is undervalued or overvalued based on the current and 5-year average yield. The stock price and dividend yield are inversely related. If the stock price increases, the dividend yield decreases, and vice versa.

Dividend Safety

Let’s analyze dividend safety. This metric is essential to look at as a dividend growth investor. Undervalued dividend stocks sometimes present a “value trap,” and the stock price can keep falling.

We must look at two fundamental metrics to determine if the dividend payments are safe yearly. The first one is Funds From Operation per share (FFO), and then we must look into Free Cash Flow (FCF) per share or Operating Cash Flow (OCF).

Analysts anticipate that KRC will earn an FFO of about $4.59 per share for the fiscal year (FY) 2022. Analysts are 85% accurate when forecasting KRC’s future FFO. Also, the company beats these estimates 15% of the time. In addition, the company is expected to pay an annualized $2.11 per share in dividends. These numbers give a payout ratio of approximately 46% based on FFO, an excellent value. It also leaves the company with room to continue to grow its dividend. Most REITs usually have a payout ratio of over 80%.

I am excited by having an 80% or lower dividend coverage with a dividend yield of 4.2% for future growth. At this point, it will allow the company to continue to grow its dividend at a mid-single-digit rate without sacrificing dividend safety. In addition, KRC has a dividend payout ratio of 60% on an FCF basis. Hence, the dividend is well covered by both FFO and FCF.

KRC Revenue and Earnings Growth / Balance Sheet Strength

We will now look at how well KRC performed and grew its FFO and revenue in the past several years. When valuing a company, these two metrics are at the top of my list to examine. Without revenue growth, a company can’t have sustainable FFO growth and continue paying a growing dividend.

KRC revenues have been growing modestly at a compound annual growth rate (CAGR) of about 11.9% for the past ten years. Net income, however, did significantly better with a CAGR of ~59% over the same ten-year period.

Revenue KRC

Source: Portfolio Insight*

However, according to Portfolio Insight* , FFO has grown 6.3% annually over the past ten years and has a CAGR of 3.4% over the past five years.

Since revenue, net income, and FFO had good growth in the past, this stock is attractive based on its valuation and dividend yield. We will discuss the company’s valuation later in this article. Meanwhile, analysts expect the company to grow FFO at a 9% rate over the next five years.

Last year’s FFO increased from $3.71 per share in FY2020 to $3.89 per share for FY2021, an increase of 5%, a solid increase after considering the problematic two years caused by the COVID-19 pandemic. This performance was an excellent growth year over year. Additionally, analysts estimate KRC to make an FFO of $4.59 per share for the fiscal year 2022, which would be a ~18% increase compared to FY2021. I like to see that future earnings continue to grow.

The company has an excellent balance sheet. KRC has an S&P Global credit rating of BBB, a lower-medium investment-grade rating. Also, the company has a debt-to-equity ratio of 0.8, which is a good one. Thus, the company has a stable balance sheet to overcome significant economic downturns like the COVID-19 pandemic last two years, adding to the dividend safety.

That said, there are still risks with an investment in KRC. For example, a recession can continue to punish the stock price as it did in the Great Recession and during the COVID-19 pandemic, which saw prices decrease by 47.1% and 99.7%, respectively. Also, companies leaving the west coast because of higher state taxes could affect this REIT’s occupancy rate.

KRC Competitive Advantage

Management execution of new properties through acquisition or construction is its most significant competitive advantage in the future. Thus, the efficiency to scale is its most crucial growth driver.

Kilroy realty Undervalued

One of the valuation metrics that I like to analyze is the dividend yield compared to the history in the past several years. I also want to look for a lower P/FFO ratio based on the past 5-year or 10-year averages. Lastly, I like to use the Dividend Discount Model (DDM). I use a DDM analysis because a business ultimately equals the sum of the future cash flow that that business can provide. Our analysis shows that Kilroy Realty is undervalued.

Let’s first examine the P/FFO ratio. KRC has a P/FFO ratio of ~11.5X based on FY 2022 FFO of $4.59 per share. The P/FFO multiple is excellent compared to the past 5-year P/FFO average of 19.4X. If KRC were to vert back to a P/FFO of 19.4X, we would obtain a price of $89.05 per share.

Now let’s analyze the dividend yield. As I mentioned, the dividend yield currently is ~4.2%. There is good upside potential as KRC’s 5-year dividend yield average is ~2.8%. For example, if KRC were to return to its dividend yield 5-year average, the price target would be $75.36.

The last item I like to look at to determine a fair price is the DDM analysis. I factored in an 8% discount rate and a long-term dividend growth rate of 5%. I use an 8% discount rate because of the higher-than-normal current dividend yield. In addition, the projected dividend growth rate is conservative and lower than its past 5-year compound rate. These assumptions give a fair price target of approximately $73.85 per share.

If we average the three fair price targets of $89.05, $75.36, and $73.85, we obtain a reasonable, fair price of $79.42 per share, giving KRC a possible upside of 58.8% from the current price of $50.00 share price.

Affiliate

Dividend Power has partnered with Sure Dividend, one of the best newsletters for dividend stock investing. The newsletter comes out monthly and highlights their top 10 picks. A lot of effort goes into analyzing hundreds of stocks, doing much of the work for you. They have over 9,000 subscribers, and it grows every month.

Sign up for the Sure Dividend Newsletter* . You can also use the Sure Dividend coupon code DP41off. The regular price for Sure Dividend Newsletter* is $199 per year and the reduced price through this offer is $158 per year. There is a 7-day free trial and refund grace period as well. So, there is no risk.

If you are interested in higher-yielding stocks from the Sure Retirement Newsletter*, the same coupon code, DP41off, gives ~25% or $41 off. The regular price of the Sure Retirement Newsletter* is $199 and the reduced price through this offer is $158 per year.

If you are interested in buying and holding stocks with a rising income from the Sure Passive Income Newsletter* , the same coupon code, DP41off, gives ~25% or $41 off. The regular price of the Sure Passive Income Newsletter* is $199 and the reduced price through this offer is $158 per year.

Conclusion on Kilroy Realty (KRC): Undervalued and 4.2% Yield

Kilroy realty is a high-quality and undervalued company that should meet most investors’ requirements. The company has a market-beating 4.2% yield and a decent dividend growth history. Past earnings growth has been excellent. However, past performance does not mean it will be the same in the future. However, I expect that KRC will do well. That is why I own shares and acquiring more at this level.

Disclosure: Long KRC

Thanks for reading Kilroy Realty (KRC): Undervalued and 4.2% Yield.

You can also read Comcast (CMCSA): Undervalued and a 2.5% Yield by the same author.

Author Bio: My name is Felix Martinez, and I am a Dividend Growth Investor who has invested in dividend growth stocks for the past seven years. I also run a YouTube channel called FiscalVoyage. I have written for SeekingAlpha.com as well as SureDividend.com. I focus on undervalued dividend growth stocks with capital return and dividend income potential. Make sure to follow me on my YouTube Channel. See you there.

* This post contains affiliate links meaning that I earn a commission for any purchases that you make at the Affiliates website through these links. This will not incur additional costs for you. Please read my disclosure for more information.
Originally Posted on dividendpower.org

KRC, Buy

Kilroy Realty Corp.
Return: -18.83%

KRC, Buy

Return: -18.83%


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
NextEra Energy Stock Dividend and Forecast
Image

NextEra Energy Stock remained stable during the June lows and the growth in dividend is expected to grow annually by 10% through 2024.

The 3 Highest Yielding Dividend Aristocrats
Image

Investors that want reliable income and ongoing dividend increases to offset inflation may be very interested in the Dividend Aristocrats.

Recent Stock Purchase II August 2022
Image

With August ending and the markets giving us better buying opportunities, I decided to add to some of my existing positions.

2022 Tobacco Stocks List | The 6 Best Now, Ranked In Order
Image

As a business owner, selling products that have high profit margins along with strong brand awareness and an exceptionally loyal customer base is strongly desirable.

Meta Stock: An Attractive Valuation
Image

According to the long-term forecasts, the worth of Meta's stock will be $272 at the end of 2022 and $360 in 2023.

Growth Investing in American Express Stock
Image

American Express Company is a payment card services provider with world-class products and services. The company has thrived over the years by providing excellent access to products, insights and experiences for their customers.

What Will Microsoft Stock Be Worth in 10 Years?
Image

Microsoft stock has rewarded its shareholders with more than 700% return over the past ten years. It will continue to grow over the next decade as well.

The Best Oil Refiner: Analyzing The Big 4 U.S. Oil Refiner Stocks
Image

Oil refiners have enjoyed an impressive rally since the start of 2021, thanks to the recovery of global consumption of oil products from the pandemic.

Recent Stock Purchase August 2022
Image

How has your summer been going? For me, it is more of the same which simply means making a monthly stock purchase and staying invested no matter how ugly the world economy is looking.

Top 5 Foundation Dividend Stocks for ANY Portfolio [October 2020 Update]
Image

Hey everyone! I was sitting at my kitchen table doing an intense round of push-ups, reading articles and had a thought. I would love to share my point of view on the top 5 foundation dividend stocks that every beginning investor should own.

eBay (EBAY) Stock – A Possible Discounted Stock to Bid On?! | Investing for Passive Income
Image

Let’s dive into a selling and re-selling platform that I use almost every single day. We are talking about eBay, not Amazon nor Facebook. I have used eBay as a reselling platform for more than 10 years.

Chevron (CVX) – Oil and Gas Demise Is Overblown
Image

This Chevron Corporation (CVX) post is my third in a series of posts in which I cover an integrated oil and gas producer as well as summarize the overblown expectations of the demise of the oil and gas industry.

SCHD vs. VYM: Which Dividend ETF Is The Best?
Image

SCHD and VYM are the two best dividend ETFs on the market. They provide a yield of around 3% and have a low cost of ownership. There is plenty of diversification in each fund, but each is designed differently.

How to Recession Proof Your Money
Image

Many people are worried about the looming recession. Here’s some information that may help ease your fears.

Blue Chip Stocks In Focus: Atmos Energy
Image

Atmos Energy can trace its beginnings back to 1906, when it was formed in Texas. Since then, it has grown organically and through mergers to a $16.5 billion market capitalization.

Blue Chip Stocks In Focus: Bristol-Myers Squibb
Image

Bristol-Myers Squibb was created as the result of a merger between Bristol-Myers and Squibb on October 4th, 1989. Bristol-Myers can trace its corporate beginnings back to 1887.

Blue Chip Stocks In Focus: Lancaster Colony
Image

LANC began its operations in 1961 after combining several small glasses and related houseware manufacturing companies.

Amazon Stock Price Prediction – Should I Buy Amazon Stock Now?
Image

Amazon business stood firm during Covid-19 and even when the stock market is engulfed in pessimism. Amazon Stock Price Prediction is too good to ignore.

The Top 3 Dividend Aristocrats Now
Image

When it comes to finding ways to compound wealth over time, we believe the best way is to buy high-quality dividend stocks, reinvest dividends, and hold them for the long-term.

Will Meta Stock Go Up? Panic, or not to Panic, That is the Question
Image

Will Meta stock go up? Many investors have become skeptical about the future of Meta Platforms due to the continuous loss of share price and advertisement revenue.

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Wise Intelligent
user_profile
Tom Hamilton
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey