3 High-Yield REITs With The Best Total Return Over The Past Three Months

Investors seeking stocks with high dividend yields often mistakenly chase poorly performing stocks that eventually cut dividends or cause investors to sacrifice principal for the yield.

But some high-yielding stocks perform well, creating appreciation and income for shareholders. Such trends can last for many months. Since November 2023, several real estate investment trusts (REITs) with high dividend yields have performed admirably. Renewed hopes for Fed cuts in 2024 and some oversold positions were the catalysts for the strength of these issues.

Take a look at three high-yielders that have been REIT leaders in total returns over the past three months. 

SL Green Realty Corp. SLG is a New York City-based office REIT and the largest office building landlord in New York. As of Dec. 31, 2023, SL Green Realty held interests in 58 buildings, totaling 32.5 million square feet.

Many income-oriented investors like owning SL Green Realty for its $0.25 per share monthly paying dividend. However, one caveat is that the dividend was recently cut from $0.2708 per share, and it was the second time since December 2022 that SL Green has cut its dividend. 

The forward funds from operations (FFO) of $5.14 per share easily covers the $3.00 annual dividend with a payout ratio of 58.3%. The annual dividend yield is 6.74%.

On Jan. 24, 2024SL Green announced its Q4 operating results. FFO of $0.72 per share missed the estimates for $0.91 and was significantly below FFO from Q4 2022 of $1.46 per share. Revenue of $131.93 million was well below the estimates for $161.36 million and even further below revenue from Q4 2022 of $172.89 million.

Despite the weak results, SL Green shares did not sell off and have been relatively stable since then. One reason is the midpoint guidance for the full year 2024 FFO of $5.90-$6.20 (vs. $5.06 consensus estimate) per share rose $1.00 from its previous range. Q4 FFO includes $0.42 of non-recurring general and administrative charges, as well as fair-value adjustments on mark-to-market derivatives.

SL Green's total return over the past three months was 47.98%, making it one of the best performers of all REITs.

Highwoods Properties Inc. HIW is a Raleigh, North Carolina-based office REIT that owns, develops, acquires, leases and manages properties in the southern cities of Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Tampa and Richmond. It was founded in 1978 and became public in 1994.

Highwoods owns 28.5 million square feet of office space. Its recent occupancy rate was 88.7% and its Weighted Average Lease Term (WALT) was 6 years. Highwoods' tenant base is well diversified by industries and its top 10 tenants include Bank of America, the federal government, MetLife, Bridgestone Americas and PPG Industries. It also owns about 120 acres of land parcels

On February 7, Highwoods Properties reported its Q4 operating results. FFO of $0.99 per share trounced analyst estimates of $0.91 per share and was above FFO of $0.96 in Q4 2022. Revenue of $206.86 million was slightly below the street estimate of $207.83 million and a decline from $211.71 million in Q4 2022.

On January 30, Deutsche Bank analyst Omotayo Okusanya initiated Highwoods Properties with a Buy rating and announced a price target of $28.

Highwoods pays a quarterly dividend of $0.50 per share. The annual dividend of $2.00 per share presently yields 8.3857%. There have been no cuts nor suspensions of the dividend over the past five years. However, the dividend has only grown by 4.16% during that time.

The payout ratio on the forward FFO of $3.60 is 55%, leaving ample coverage of the dividend to minimize the risk of a dividend cut.

Highwoods Properties' total return over the past three months is 35.50%.

Newlake Capital Partners Inc. NLCP is a New Canaan, Connecticut-based industrial REIT with 32 properties of 1.7 million square feet across 12 states. Newlake Capital Partners specializes in triple-net leases to cannabis companies, as well as providing capital to them when necessary.

Newlake was founded in 2019 and had its IPO in August 2021. Its tenants include the largest companies in the cannabis industry, such as Curaleaf, Cresco Labs and Trulieve. As of September 30, it had a 100% occupancy rate, with an average of 14.2 years remaining on its lease terms and 2.6% annual rent escalations. 

Newlake Capital pays a quarterly dividend of $0.40 per share. The forward annual dividend of $1.60 per share yields 9.79%. The quarterly dividend has been raised six times since 2021 and has been increased by 233%. The payout ratio of 90.39% seems somewhat high, but with so little debt (only $2 million as of September 2023), Newlake is not likely to be at immediate risk of a dividend cut.

One thing to keep in mind is that Newlake does not trade on one of the major indices, which means smaller volume, wider bid-ask spreads and somewhat higher risk. Compare Newlake's average daily volume of 35,818 shares traded with the 244,057 of competitor Innovative Industrial Properties Inc. IIPR which trades on the New York Stock Exchange. 

Over the past three months, NewLake Capital Partners has had a total return of 27.81%.

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