These High-Yield REITs are looking like a solid bet to provide consistent long-term income.
High-yield real estate investment trusts (REITs) are especially attractive to investors seeking above-average dividend yields. These types of REITs typically own and operate income-generating properties such as residential or commercial real estate, and they are required to distribute a significant portion of their earnings to shareholders in the form of dividends.
When researching the best high-yield REITs to invest in, it is important to consider factors such as the property types in the REIT's portfolio, geographic locations, historical performance, and management team. Some of the best high-yield REITs may specialize in specific sectors such as multifamily housing, healthcare facilities, or retail properties. By investing in a diversified portfolio of high-yield REITs, investors can mitigate risks associated with any single property type or market downturn.
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. Spirit Realty Capital
Spirit Realty Capital (NYSE: SRC) specializes in single-tenant, net-leased properties across the United States. With a diverse portfolio encompassing various sectors such as retail, industrial, office, and healthcare, Spirit Realty Capital offers investors a stable and attractive investment opportunity. The company's strategic focus on high-quality properties and long-term leases with creditworthy tenants provides a reliable income stream and potential for growth.
Spirit Realty Capital's business model is centered around providing essential real estate solutions to corporate tenants, offering them a flexible and efficient way to access capital and unlock the value of their owned real estate assets.
3. 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 3 High-Yield REITs
| Symbol | Dividend Rate | Dividend Yield | Market Cap |
|---|---|---|---|
| OHI | $2.68 | 10.0% | $6.173B |
| SRC | $2.57 | 6.44% | $5.718B |
| MPW | $1.16 | 11.3% | $5.972B |
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 2022 |
|---|---|---|
| FTSE Nareit Mortgage REITs | 34 | 11.60% |
| Specialty | 9 | 7.57% |
| Health Care | 15 | 4.84% |
| Diversified | 11 | 5.68% |
| Retail | 33 | 4.68% |
| Office | 19 | 4.80% |
| Self Storage | 5 | 3.37% |
| Residential | 20 | 3.17% |
| Infrastructure | 4 | 3.01% |
| Timber | 4 | 2.36% |
| Data Centers | 2 | 2.52% |
| Industrial | 12 | 2.62% |
| Hotel | 14 | 2.69% |
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 out 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.
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REIT Glossary
Not sure what some of the terms used in this article mean? Don't worry, here are the definitions of terms you should know to understand a REIT's dividends.
Dividend
This is a cash distribution some companies make to shareholders as a way to share profits. Dividend payments are typically made either monthly or quarterly. The dividend yield is the annualized return you would receive on your investment in the form of dividends based on the current share price and assuming the dividend payment remains the same.
Funds From Operations (FFO)
This is a metric used to analyze a REIT's cash flow from its real estate operations. This number is calculated by adding depreciation and amortization back to the company's net income and removing any gains or losses from the sale of real estate.
FFO Payout Ratio
This is a ratio used to determine how safe a REIT's current dividend is. This is calculated by first figuring out the FFO per share (FFO/shares outstanding = FFO/share) and then comparing that to the dividend payment per share. Dividend per share/FFO per share = FFO payout ratio.
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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.
Frequently Asked Questions
What REITs have the highest dividend yield?
What are REITs in real estate?
Why do REITs pay 90% dividends?
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This unique aspect of REITs stems from their special tax treatment. In exchange for this high distribution requirement, REITs are able to avoid paying corporate income tax at the entity level. Instead, the tax burden is shifted to the individual shareholders, who are taxed on the dividends they receive. This pass-through tax structure allows REITs to operate effectively while providing attractive cash flow to investors.