8 Best High-Yield REITs to Buy | Investing

When it comes to stock investments, receiving dividends is always a pleasant bonus, but not all companies distribute them consistently.

While some companies, known as “Dividend Aristocrats” or “Dividend Kings,” have maintained a record of increasing dividends for 25 or even 50 years, others, like Warren Buffett’s Berkshire Hathaway Inc. (ticker: BRK.A, BRK.B), choose not to pay dividends at all.

“REITs are companies that own, operate or finance income-generating real estate properties,” says Rohan Reddy, director of research at Global X ETFs, which operates the Global X SuperDividend REIT ETF (SRET). “They are required to distribute at least 90% of their taxable income as dividends to shareholders, which makes them a popular choice for investors seeking regular income.”

If income is a priority, you might further consider REIT exchange-traded funds that offer yields higher than sector benchmarks, like the Schwab U.S. REIT ETF (SCHH), which follows the Dow Jones Equity All REIT Capped Index and has a distribution yield of 3.5%.

“Overall, REITs are currently paying a dividend that is nearly three times the dividend on the S&P 500 – plus the potential for capital appreciation,” says Abby McCarthy, senior vice president of investment affairs at Nareit.

However, pursuing high-yield REITs comes with its own set of risks. Instead of myopically focusing on chasing the highest dividend yields, it’s more important to assess the underlying fundamentals. This means focusing on two key metrics: occupancy rates and funds from operations (FFO).

Occupancy rates measure the percentage of rentable space that’s currently leased out. A high rate indicates strong demand and financial health, suggesting that the REIT has steady rental income. In contrast, a REIT with a low occupancy rate could be under financial stress.

On the other hand, FFO is a real-estate-specific cash flow measure, adding back depreciation and amortization to net income. This provides a clearer picture of the REIT’s actual operating performance compared to more traditional measures like earnings per share (EPS).

By monitoring these indicators, investors can perform thorough due diligence to ensure that the REIT is not only offering a high yield but is also financially healthy, reducing the risk of dividend cuts.

Here are eight high-yield REITs to buy in 2024 with dividends of 5% and over:

“Investors need to be very careful with high-yield REITs,” says Sam Adams, CEO and co-founder of Vert Asset Management. “Some could be considered high yield simply because their stock price has fallen so much that the dividend yield looks high.” For a focus on quality along with decently high yields, investors can consider Realty Income, which is one of the few S&P 500 companies that pay dividends monthly.

Realty Income’s track record is excellent, having delivered over 25 years of consecutive increases to qualify as a Dividend Aristocrat. Its underlying real estate portfolio is rock-solid, boasting a 98.6% occupancy rate across more than 15,450 properties, with over 25% leased to durable, non-cyclical tenants like grocery, convenience and dollar stores. This REIT currently pays a 5.6% dividend yield.

Omega Healthcare Investors Inc. (OHI)

“OHI’s long-term, triple-net lease structures combined with fixed rates on 99% of its outstanding debt have helped shield it from the forces impacting the real estate sector,” Reddy says. “Built-in annual rent escalators on its agreements also help outstanding leases keep pace with inflation, and the weighted average length of its outstanding lease terms at 9.4 years reduces the likelihood of short-term turnover.”

OHI recently reported earnings for the quarter ended March 31, which met analysts’ expectations with 60-cent FFO per share and the completion of $75 million in new loans, acquisitions and renovations. The REIT also paid down $400 million in senior unsecured loans and affirmed its initial guidance for 2024. Investors can currently expect a high 8.7% dividend yield.

Community Healthcare Trust Inc. (CHCT)

“Long-term-care facilities comprise a historically stable sector of the real estate market, which has held up well in the backdrop of rising rates and market volatility,” Reddy says. “This can be attributed to tight supply buoyed by a delayed construction pipeline, increased investor interest in alternative asset classes and strong secular tailwinds from an aging population.”

The less cyclical nature of Community Healthcare Trust’s outpatient properties gives it lower volatility and sensitivity compared to the broad market, with a five-year monthly beta of 0.6. However, this REIT recently missed on earnings, posting FFO per share of 59 cents, down from 62 cents a year earlier. Still, prospective investors are getting “paid to wait” with a 7.8% dividend yield.

AGNC Investment Corp. (AGNC)

“Going forward, mortgage REITs may continue to face challenges in the face of rate uncertainty, but they do offer an interesting opportunity should rates begin to stabilize,” Reddy says. These unique REITs typically benefit from wider interest rate spreads, which can enhance their profit margins when rates stabilize, allowing them to potentially increase dividends or reinvest in more lucrative opportunities.

A high-risk, high-reward pick in this category is AGNC Investment Corp., which doesn’t actually own physical properties. Rather, it invests in residential mortgage-backed securities and collateralized mortgage obligations guaranteed by U.S. government agencies like Fannie Mae, Freddie Mac or Ginnie Mae. AGNC is fairly volatile, with a 1.4 five-year monthly beta, but it pays a high 14.7% dividend yield.

Blackstone Mortgage Trust Inc. (BXMT)

“Mortgage REITs came under pressure due to the exposure of their underlying portfolios to rising rates,” Reddy says. “However, Blackstone Mortgage Trust’s loan portfolio remains resilient, reflecting the strong credit quality of its underlying holdings.” This mortgage REIT benefits from the real estate and lending expertise of parent company Blackstone Inc. (BX), a renowned alternative asset manager.

This mortgage REIT currently manages a senior loan portfolio valued at $21.1 billion across 173 loans. On average, the loans cover 63% of the property’s appraised or purchase value at the time of issuance. This moderate loan-to-value, or LTV, ratio indicates that the properties are less leveraged, providing a cushion against potential declines in property values. Investors can expect a high 13.6% dividend yield.

Apple Hospitality REIT Inc. (APLE)

Ever dreamed about owning a hotel? With Apple Hospitality REIT, you can earn dividends financed by hotel tenants such as Marriott International Inc. (MAR), Hilton Worldwide Holdings Inc. (HLT) and Hyatt Hotels Corp. (H). This REIT’s portfolio currently spans 224 hotel properties, spanning over 29,900 guest rooms across 37 states. However, do keep in mind that this REIT operates in a fairly cyclical sector, and has been hard-hit by events like COVID-19.

If you’re after monthly income, Apple Hospitality REIT may also be a suitable holding. The last ex-dividend date was April 29 for 96 cents per share. The next ex-dividend date is yet to be announced, but will likely fall toward the end of May. Remember, to receive a dividend, you must buy and hold shares of the REIT before the ex-dividend date. Currently, investors can expect a 6.5% dividend yield.

If you’re looking for exposure to consumer discretionary spending, consider EPR. “EPR benefited from strong consumer spending tailwinds in the wake of the pandemic and saw its revenue exceed pre-pandemic levels in early 2023,” Reddy says. “It also capitalized on shifting preferences among younger consumers for ‘experiential’ spending, as travel drove growth among discretionary sectors.”

This REIT’s prospects are heavily tied to the economy, as it operates properties with movie theaters, golf courses, ski resorts, waterparks, amusement parks, casinos and fitness centers. Unsurprisingly, it is more volatile and sensitive than the broad market, with a high 1.6 five-year monthly beta. This makes it a better pick for an expanding economy versus a recessionary one. EPR pays an 8.2% dividend yield.

SL Green Realty Corp. (SLG)

Want to be a part-time landlord of commercial property in one of the biggest cities? The REIT to watch is SL Green Realty, which is currently Manhattan’s largest office landlord, with 57 properties totaling 32.4 million square feet. With a high 5.7% dividend yield, investors can collect above-average income while betting on a potential rebound in commercial property amid a return-to-office trend.

However, SL Green Realty has historically been fairly risky. During the 2020 onset of the COVID-19 pandemic, this REIT saw its price draw down by over 52%, as investors sold their shares fearing prolonged low occupancy rates. Even with dividends reinvested, an investor holding this REIT until the present has not yet broken even. It is also a very volatile investment, with a 1.7 five-year monthly beta.