CTO Realty Growth Offers Attractive Dividend Yield and Upside Potential

CTO Realty Growth offers a 9.3% dividend yield that is fully covered by FFO and free cash flow, making it a potential buy. The company presents an upward asymmetric returns profile, with a short-term price dislocation that could lead to significant gains.

CTO Realty Growth, Inc. (NYSE: CTO) has captured investor attention with its attractive dividend yield and robust financial performance. The company offers a 9.3% dividend yield, fully covered by funds from operations (FFO) and free cash flow, positioning it as a potential buy for investors seeking income and growth.

The company's second quarter results highlighted a 30.5% increase in revenue, reaching $37.64 million, which beat consensus estimates by $1.18 million. This growth, coupled with a stable quarterly cash dividend of $0.38 per share, provides a strong foundation for the company's dividend yield. The dividend yield of 9.3% is fully covered by FFO of $0.45 per share, and the company's trailing twelve months free cash flow of $76.95 million exceeds total dividends declared over the same period of $54.91 million [1].

Despite these positive indicators, the company faces several risks. The short-term price dislocation could be attributed to economic uncertainty, including concerns about the Fed funds rate and potential credit spread widening. REITs like CTO are sensitive to these economic indicators, which can influence prime rates and overall market conditions. However, the Federal Reserve's current projections suggest a high probability of rate cuts, which could benefit REITs by making debt cheaper [2].

Occupancy rates have been a concern, with a sequential dip to 90.2% during the second quarter. This decline was partly due to tenant bankruptcies and tariffs increasing costs for retailers. CTO is actively working to re-lease vacant anchor spaces, signing 227,000 square feet of new leases, extensions, and renewals during the second quarter. Additionally, the company expects its pipeline to become more visible from the fourth quarter, potentially boosting revenue and free cash flow [2].

CTO Realty Growth's debt profile also presents a positive outlook. The company faces no further debt maturities in 2025 and has a manageable debt maturity of $83 million in 2026 against total liquidity of $85 million as of the end of the second quarter. Furthermore, the CME FedWatch Tool indicates a high probability of rate cuts, which could benefit the company's financial health [2].

In conclusion, CTO Realty Growth offers an attractive dividend yield with robust coverage and a potential for asymmetric returns due to short-term price dislocation. However, investors should consider the risks associated with economic uncertainty and occupancy rates. The company's strong financial performance and strategic initiatives position it as a compelling investment opportunity.

References:
[1] https://seekingalpha.com/article/4813184-cto-realty-covered-9-3-percent-dividend-yield-and-short-term-price-dislocation-buy?source=affiliate_program:stockanalysis.com&utm_medium=affiliate&utm_source=stockanalysis.com&affid=858&oid=16&transaction=3cd3646c1c3c4cbfac4ecc717340ee3c
[2] https://seekingalpha.com/article/4813184-cto-realty-covered-9-3-percent-dividend-yield-and-short-term-price-dislocation-buy