5 Ways To Invest $250,000 In REITs

One of the best things about investing in real estate investment trusts (REITs) is that there are many different ways to do so. Since investors have different needs, depending on age, present income, objectives and other variables, REITs provide several means for all investors to establish long-term wealth.

Take a look at five different ways that an investor could create a portfolio of REITs with $250,000 (or, for that matter, any amount) that would offer substantial returns over time:

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Dividend Growth 

Looking for REITs with a strong history of growing dividends is a great way to invest in REITs, especially for younger investors. Even if the dividend yield isn't more than 3% or 4% today, a REIT with strong dividend growth has already shown it will increase dividends regularly and will likely continue. Frequent dividend increases indicate that the REIT is increasing its revenue and Funds From Operations (FFO).

Younger investors who are years away from retirement may choose to reinvest dividends into more shares of a REIT rather than collecting the income in an account. Reinvesting dividends almost always beats collecting dividends for total return over many years.

For example, CTO Realty Growth Inc. CTO, one of the best dividend growers over many years, has had a total return of 637.00% since August 1995 if one collected the $7.72 of dividends per share. However, if the dividends were reinvested into more shares, the total return would be 851.60%. 

In November 2019, CTO Realty Growth paid only $0.04 per dividend share. Today, after several raises (and one small cut during COVID-19), it pays a dividend of $0.38 per share. That's an 850% growth rate in less than five years.

Some other REITs that have shown terrific dividend growth over the past five years are American Homes 4 Rent Class A AMH with 39.06%, Postal Realty Trust Inc. PSTL with 30.67% and Innovative Industrial Properties Inc. IIPR with a 25.93% increase.

High-Yield Income 

Older investors who are retired or close to retirement age often look for dividend income that can supplement Social Security or other income sources. REITs with yields above money markets, CDs or Treasury bills are excellent sources of income. These investors are less concerned with week-to-week price fluctuations as long as the dividends are paid regularly and safely covered by the REIT's earnings.

With about 200 REITs to choose from, investors should not just select the highest yields because those stocks can often be "yield traps" or poorly performing stocks at risk of having the dividend cut. Investors should look for stocks with "payout ratios" (annual dividends divided by the forward earnings) of 80% or less.

One good example is EPR Properties EPR, a specialized REIT that owns experiential properties. The present dividend yield is 7.94% and the payout ratio ($3.94 annual dividend on FFO of $4.86 per share) is 70.3%. Like many REITs, EPR Properties was forced to cut its dividend during the COVID-19 pandemic, but there have been several increases and no further cuts since July 2021. 

Other examples of safer high-yield income REITs are Highwoods Properties Inc. HIW, with a dividend yield of 6.61% and a payout ratio of 55.86%, and Kilroy Realty Corp. KRC, with a dividend yield of 6.60% and a payout ratio of 50.94%. A low payout ratio also provides the opportunity for further dividend increases.

Investing $250,000 in 6% yielding REITs would earn $15,000 annually. At 7%, the annual income becomes $17,500.

Monthly Dividend Payers

Most REITs pay dividends quarterly, but 18 REITs pay dividends every month. Many investors prefer these because the income can be used to pay ongoing regular expenses such as utility bills, gasoline, dining out, etc. Investors who reinvest dividends benefit further from monthly dividends because the shares can compound sooner and enhance the total return over time.

Realty Income Corp. O, a diversified REIT that has increased its dividend for 30 consecutive years, is one of the most popular monthly dividend payers. Investors love Realty Income because it offers safe and reliable income. Realty Income has increased its dividend for 107 consecutive quarters.

Other stalwart monthly dividend payers include Agree Realty Corporation ADC, SL Green Realty Corp. SLG and LTC Properties Inc. LTC.

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Sub-Sector Leaders

The National Association of Real Estate Investment Trusts (Nareit) identifies 14 different REIT subsectors of property types. Some examples are retail, industrial, health care, office, residential and diversified. One way to invest in REITs is to build a basket of stocks using the best one or two REITs from each subsector. This gives an investor a superior opportunity for consistent dividend payments and long-term appreciation.

The best way to determine which REITs to buy is through a stock screener, which can be found on many Brokerage platforms or other Internet investment sources. REITs should be compared based on their total performance (appreciation plus dividends) over 12 or more months.

For example, among the 24 Retail REITs, the best performers over the past 52 weeks have been Acadia Realty Trust AKR, up 35.76% and Simon Property Group Inc. SPG, up 28.80%. Among the 22 Residential REITs, the two best have been Bluerock Homes Trust Inc. BHM, up 20.47% and UMH Properties Inc. UMH, up 20.14%.

General REIT Index 

Because there are so many REITs, deciding which ones to select can be difficult. One easy way to have the advantage of owning REITs without extensive research is to buy a general REIT index ETF. One example is the Vanguard Real Estate Index Fund ETF VNQ. Vanguard seeks to provide income and long-term capital appreciation by tracking the performance of REITs and other real estate-related investments.

Since October 2004, the Vanguard Real Estate Index Fund has returned 194.35%. A $250,000 investment in October 2004 would now be worth $735,640, or $1,044,779, if dividends were reinvested rather than collected.

Summing up, REITs are a great way to invest, by whatever method an investor chooses.

Better Yields Than Some REITs?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through REITs.

Arrived Homes, the Jeff Bezos-backed investment platform has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in July. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

As long-term rates go down and short-term rates stay high, there’s a unique chance to invest in fix & flip loans before yields drop. Check out Benzinga's favorite high-yield offerings.