These High-Yield REITs are looking like a solid bet to provide consistent long-term income.
Real estate investment trusts (REITs) have long been a popular choice for investors seeking steady income and diversification. Among them, high-yield REITs stand out for their ability to generate above-average dividend payouts, making them attractive for income-focused portfolios.
These REITs typically invest in sectors like commercial real estate, residential properties, or specialized assets, offering a balance between real estate exposure and the liquidity of stock markets. However, higher yields often come with increased risks, such as market volatility or sector-specific challenges.
This guide explores the world of high-yield REITs, helping you understand their potential benefits and risks, and how to identify opportunities to boost your passive income.
Quick Look: The Best High-Yield REITs
Best High-Yield REITs
One of the most appealing things about investing in REITs is the passive income they can provide through dividend payments. However, there's more to consider than just the dividend yield. There are some high-dividend REITs that may look tempting, but when you start to dig into the company you quickly realize that the payouts aren't sustainable or that the company is likely to lose value over time.
To save you countless hours of research to find the best high-yield REITs, we've done the heavy lifting to show you 3 high-dividend REITs to consider buying that aren't only in a position to maintain their current yields but increase dividend payouts over time.
1. Omega Healthcare Investors
Omega Healthcare Investors (NYSE: OHI) is a healthcare REIT that specializes in providing capital and financing for skilled nursing facilities and senior housing properties. With a focus on healthcare-related real estate, Omega offers a unique investment opportunity for those looking to diversify their portfolio within the healthcare industry. The company's business model revolves around acquiring and leasing properties to operators in the long-term care industry, thereby generating steady cash flow and attractive returns for investors.
By partnering with experienced operators and management teams, Omega is able to maintain high occupancy rates and quality standards within its properties. Additionally, the company's long-term leases provide stability and predictability in terms of revenue, making it an appealing option for income-oriented investors.
2. Medical Properties Trust
Medical Properties Trust (NYSE: MPW) is a healthcare REIT that owns and leases out a diverse portfolio of healthcare properties, including acute care hospitals, rehabilitation hospitals, and specialty medical facilities across the United States and internationally.
One of the key strengths of Medical Properties Trust is its stable and growing revenue stream from long-term net leases with leading healthcare providers. This predictable income stream allows MPW to provide consistent returns to its investors while also contributing to the stability of the healthcare sector. Additionally, Medical Properties Trust's focus on strategic acquisitions and partnerships enables the company to expand its portfolio and strengthen its presence in key healthcare markets.
Comparing the Top 2 High-Yield REITs
| Symbol | Dividend Rate | Dividend Yield | Market Cap |
|---|---|---|---|
| OHI | $2.68 | 7.21% | $10.36B |
| MPW | $0.53 | 13.55% | $2.42B |
High-Yield Non-Traded REITs
Not all REITs are bought and sold on the major stock exchanges. Shares in non-traded REITs are typically bought directly from the company or through a real estate crowdfunding platform. The main benefit to investing in non-traded REITs is that their share prices are directly tied to the value of the REIT's real estate portfolio and aren't affected by the market. Here are our top two picks for non-traded high-yield REITs.
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Highest Dividend REIT Sectors
| Sector | Number of REITs | Avg Dividend Yield 2024 |
|---|---|---|
| Mortgage | 33 | 12.65% |
| Specialty | 7 | 3.71% |
| Health Care | 17 | 3.81% |
| Diversified | 12 | 7.06% |
| Retail | 30 | 4.71% |
| Office | 17 | 4.54% |
| Self Storage | 4 | 4.26% |
| Residential | 18 | 3.41% |
| Infrastructure | 4 | 4.26% |
| Timber | 3 | 3.26% |
| Data Centers | 2 | 2.18% |
| Industrial | 12 | 3.78% |
| Hotel | 12 | 5.14% |
Why Invest in REITs?
Here’s a quick look at some of the advantages of investing in REITs.
- Low-cost Investments: REITs allow you to invest in real estate at low entry prices. They also allow you to invest in some of the highest quality properties available that are managed by the most experienced teams of professionals in the industry. This is an appealing alternative to starting with higher-risk rental properties that come with the headaches of being a landlord.
- Convenient Passive Investments: Since REITs are required to pay out 90% of their taxable income to shareholders in the form of dividends, many REITs can provide consistent long-term income. Income from rents is fairly consistent, current performance is easy to track and dividend income is fairly easy to predict. Plus, you can choose REITs that focus on residential or commercial properties, depending on which makes you more comfortable.
- Protects you During Stock Crashes: In most cases, the real estate market performs inversely to the stock market. The price of stocks from industries such as information technology, finance, and retail have a higher chance of taking a hit during market downswings. However, REIT companies from the real estate sector are less volatile in such situations. While the share price of a REIT may go down when the market crashes, it can continue to pay dividends while you wait for the stock price to recover.
- Higher Liquidity: Finding the right buyer to sell your property can take time. Selling a property below its actual value is never a good idea. It can prove to be an obstacle if you’re in need of funds urgently. REITs are comparatively more liquid as you can buy or sell your shares at your convenience just like any other publicly-traded stock.
Disadvantages of Investing in REITs
Investing in REITs comes with several disadvantages:
- Market Volatility: REITs can be affected by broader market fluctuations, leading to price instability.
- Interest Rate Sensitivity: REITs are sensitive to changes in interest rates, as rising rates can lower property values and reduce dividend yields.
- Taxation: REITs are subject to specific tax rules, and their dividends are often taxed as ordinary income, potentially leading to higher tax burdens.
- Management Fees: Many REITs charge management fees, which can eat into returns, especially in actively managed funds.
- Lack of Control: Investors have no direct control over the management or operations of the properties owned by the REIT.
Despite these drawbacks, REITs can offer diversification and regular income, making them suitable for some investors when managed properly.
High-Yield REITs Make Real Estate Investing Affordable
It can take months or even years to finance and manage real estate properties by yourself. Fortunately, high-yield REITs provide a faster and more feasible investment option for real estate investing. The low cost of owning REIT shares and its robust return rates have made it highly appealing to investors with limited capital.