Key Takeaways
What is an REIT?
Why REITs pay high-dividend yields
10 best high-yield REITs
High-yield REITs (real estate investment trusts) have proven they belong in a diversified portfolio. The prevalence of REITs on major stock exchanges suggests there’s plenty of investment interest. As recently as the fourth quarter of 2022, REITs listed on the New York Stock Exchange (NYSE) carried a combined market capitalization of $948.8 billion. Perhaps even more importantly, the REITs which account for that market cap have become synonymous with a track record of strong performance and high dividends.
According to Nareit,the worldwide representative voice for REITs and publicly traded real estate companies, “the FTSE Nareit All REITs Index has a dividend yield of 4.0%, more than double that of the S&P 500’s 1.9%.” While not all high-yield REITs guarantee a 4.0% dividend, today’s investors can build a portfolio of strong performing REITs with supplement income with very attractive yields.
What Is An REIT?
REIT is an acronym for real estate investment trust. As their names suggest, REITs are businesses which own, finance, or operate income-producing real estate assets. In other words, REITs are in the business of making money off of real estate. However, it is worth noting that how REITs make money off of real estate assets can vary from company to company.
To be clear, most REITs own physical real estate assets. Office buildings, malls, apartment complexes, hotels, self-storage facilities, and warehouses have all found themselves in the portfolios of today’s REITs. As real estate investment trusts, businesses will lease their properties to subsequent renters. Tenants may be anyone from a family renting an apartment or a department store leasing mall space.
The most well-known REITs have developed a reputation for making money off of leasing their own real estate assets to renters. However, not all REITs own physical real estate. As I already alluded to, REITs may also finance real estate, not unlike a bank underwriting a mortgage. For example, mortgage REITs (mREITs) function a lot like traditional institutional lenders; they offer financing for others to acquire income-producing real estate. By acting as the lender, mREITs collect interest off of the loans they underwrite.
Not all REITs are cut from the same cloth, but they all share a similar mode of operation: to generate income from real estate assets. In their simplest form, REITs are in the business of owning real estate, and investors may invest in REITs based on their particular performance. Not unlike shares of a business on the New York Stock Exchange, investors may trade shares of REITs.
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Why Do REITs Pay High Dividend Yields?
Real estate investment trusts pay high-dividend yields because federal regulators require them to do so. To qualify as an REIT, in fact, real estate investment trusts must distribute at least 90.0% of their taxable income to shareholders annually in the form of dividends. Paying the majority of their taxable income to shareholders each year is just one of many qualifications REITs must meet, which begs the question: Why do REITs pay high dividend yields? Or, more importantly: Why would a company want to be classified as a REIT in the first place?
Due to the dividend requirement, the long-term growth potential of many REITs has a ceiling. If for nothing else, the money which most companies would reinvest in business operations is distributed to shareholders. In return, however, REITs are granted significant tax breaks. Qualifying REITs are permitted to deduct all of the dividends they pay out each year from their corporate taxable income. This significantly reduces their taxable obligations.
Are High-Dividend REITs Safe?
To be clear, there is no direct correlation between the quality of a company and the yield it pays out. While it is common for successful REITs to have relatively high-yielding dividends, there’s no reason an underperforming REIT couldn’t do the same. Consequently, there are plenty of well-run companies that pay proportionately small dividends. When all is said and done, there is no way of telling how safe it is to invest in a company based on its dividend yield alone.
However, it should be noted that dividends that seem too good to be true usually are. In fact, some REITs may increase their dividend to attract investors, despite their performance. That’s not to say that all high-yield REITs are dangerous investments, but rather that exceptionally high yields have more cause for concern.
The 17 Best High-Yield REITs In 2022
High yields have proven they belong in an income investor’s portfolio, but the percentage of the yield is only part of the investing thesis. While it’s important to target companies with yields that meet specific criteria, it’s equally as important to invest in the company behind the yield. If for nothing else, there’s no direct correlation between great REITs and high yields. The key for investors is to identify strong companies with great growth prospects and acceptable yields. The convergence of these three factors is paramount in choosing the best high-yield REITs in 2022. With that in mind, the following companies may not have the highest yields in the REIT sector, but they do have everything dividend investors want out of a company today:
Apollo Commercial Real Estate Finance (NYSE: ARI)
SL Green Realty (NSYE: SLG)
STAG Industrial (NYSE: STAG)
Annaly Capital Management (NYSE: NLY)
AGNC Investment Cor (NYSE: AGNC)
Omega Healthcare Investors (NYSE: OHI)
Alexander’s Inc. (NYSE: ALX)
Getty Realty Corp. (NYSE: GTY)
National Health Investors (NYSE: NHI)
Gladstone Commercial (NYSE: GOOD)
Ryman Hospitality Properties, Inc. (NYSE: RHP)
Healthpeak Properties, Inc. (NYSE: PEAK)
AvalonBay Communities, Inc. (NYSE: AVB)
STORE Capital Corporation (NYSE: STOR)
STAG Industrial, Inc. (NYSE: STAG)
Realty Income Corporation (NYSE: O)
UDR, Inc. (NYSE: UDR)
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Apollo Commercial Real Estate Finance (Dividend Yield: 10.5%)
Apollo Commercial Real Estate Finance is a real estate investment trust that invests in debt securities and commercial real estate-related debts. It holds a multibillion dollar commercial real estate portfolio consisting of hotels, offices, urban pre-development, residential-for-sale inventory, and residential-for-sale construction across the UK, New York, and the US.
This REIT’s high dividend yield and payout ratio should inform investors to monitor it going forward. However, after the loss that Apollo experienced during the recession of 2009, investors should create a broadly diversified portfolio if they consider this option.
SL Green Realty (Dividend Yield: 5%)
SL Green Realty is an REIT based in New York City that specializes in office space and shopping centers investments. The firm engages in the acquisition, development, ownership, management, and operation of commercial and residential real estate properties. The company owned 43 properties in 2019 and their most notable investments include the One Vanderbilt and Random House Tower.
As the leading office space landlord of NYC, SL Green Realty encountered setbacks due to the impact of the Coronavirus. However, as the popularity of vaccines continue to bring an increasing returned amount of normalcy, SL Green can be expected to make a comeback this year.
STAG Industrial (Dividend Yield: 3.8%)
STAG Industrial is an REIT that focuses on acquiring and operating single-tenant industrial properties across the US. as of 2022, STAG Industrial owned and operated nearly 500 buildings within 39 states. One reason that STAG can be an attractive investment option is its diversification. Their extremely diversified portfolio minimizes the risk of each of their investments, which protects their long term wealth building strategy.
Annaly Capital Management (Dividend Yield: 13%)
Annaly Capital Management is an REIT that invests in agency mortgage-backed securities, non-agency residential mortgage assets, and residential mortgage loans. Their diversified income streams give this REIT a push over their competition. However, investors should be aware of their company’s sensitivity to rising interest rates since those of the last recession.
AGNC Investment Corp (Dividend Yield: 11.4%)
AGNC invests in agency mortgage-backed securities, which is different from the previously mentioned REIT companies. Its hedge portfolio consists mainly of intermediate and long term hedges which is a contributing factor to the success the company is currently realizing.
Omega Healthcare Investors (Dividend Yield: 9.59%)
As the name suggests, Omega Healthcare Investors is an REIT focused on healthcare facilities. The group invests in and operates nursing homes, assisted living facilities, and other retirement housing options across the country. OHI has experienced steady growth over the last several years, and many experts predict the trend will continue.
Alexander’s Inc. (Dividend Yield: 7.04%)
Alexander’s Inc. is an REIT that specifically focuses on investments within and around New York City. They currently hold retail, residential, and commercial office properties. Alexander’s Inc. deals with property leases, development, management, and redevelopment. Their earnings have showing promising increases this year thus far.
Getty Realty Corp. (Dividend Yield: 5.37%)
REITs are unique in their holdings, and Getty Realty Corp. is no exception. This group specializes in the management of gas stations, convenience stores, car washes, and other automotive businesses. They currently hold properties across the Northeast, with a recent focus on Midwestern properties.
National Health Investors (Dividend Yield: 6.89%)
NHI is another REIT focused on nursing homes and medical buildings across the country. Despite recent declines in payouts, the average dividend yield is still relatively high when compared to other REIT options. National Health Investors is expected to grow over the next year as the healthcare industry addresses issues raised by the pandemic.
Gladstone Commercial Corporation (Dividend Yield: 6.54%)
Gladstone’s portfolio boasts a diverse range of commercial spaces including offices, retail spaces, and medical buildings. This REIT also holds industrial properties, and provides investors will relatively stable dividends. The value per share has been increasing over the last several years, leading this REIT to have one of the highest payout ratios in this list.
Ryman Hospitality Properties, Inc. (Dividend Yield: N/A)
Ryman Hospitality Properties, Inc. is a REIT that operates a diversified portfolio of properties, primarily in four business segments: Hospitality; ResortQuest; Opry and Attractions; and Corporate and Other. The most notable contributor to Ryman Hospitality Properties’ portfolio is the Grand Ole Opry. Arguably, this REIT owns the most valuable event properties in Northern California, outside of Las Vegas. That said, the company was hit particularly hard by the Coronavirus, and the stock price dropped from $89.00 to $21.49 between February and March (about 75.8%). Since then, the stock has rebounded on the news of a vaccine and is well on its way to recovery, but can still be had at a discount.
It should be noted that Ryman Hospitality Properties, Inc. suspended its dividend in the wake of the pandemic. The last dividend payment the company made was on April 15, 2022, which amounted to $0.95 a share. However, the recovery should bring back the dividend sooner rather than later, and patient shareholders could be rewarded handsomely. It is too soon to tell what the dividend yield will be once it returns, but investors can expect it to be somewhere in the neighborhood of 5.0% to 10.0%.
Healthpeak Properties, Inc. (Dividend Yield: 4.95%)
Healthpeak Properties, Inc. is a REIT that invests in real estate assets related to the healthcare industry. Properties included in the Healthpeak portfolio include, but are not limited to, long-term care facilities and acute care and medical office buildings. As a result, Healthpeak is one of the more diversified healthcare REITs on the market. More importantly, however, is the growing need for the healthcare facilities PEAK owns. As Baby Boomers get older, the need for healthcare facilities increases, and Healthpeak is well-positioned to meet the need.
As one of the best high-yield REITs on the market, Healthpeak is not only in a position to grow in the future, but it also offers a dividend yield of about 4.95%. The unique convergence of price, value, potential, and dividend yield will allow investors to compound gains over years, if not decades. An investment in PEAK now could grow investors’ income well into their own retirement.
AvalonBay Communities, Inc. (Dividend Yield: 3.82%)
AvalonBay Communities, Inc. is a well-established REIT that specializes in the development, redevelopment, acquisition, ownership, and operation of multifamily properties across the United States. Not unlike the rest of the REIT sector, AvalonBay was hit incredibly hard by the pandemic and dropped from nearly $230.00 in February to about $130.00 in March. The drop was a clear overreaction, made out of fear and uncertainty. Today, the stock has rallied back to just under $170.00, and still represents a discount, especially with a vaccine on the horizon.
While AvalonBay Communities, Inc. is still far below its 52-week high, a recovery seems more likely than not, which means the stock has a lot of room to run. On top of that, the company appears to have enough money on the books to weather the rest of the pandemic and (more importantly to some) maintain its 3.82% dividend yield.
STORE Capital Corporation (Dividend Yield: 4.42%)
STORE Capital Corporation is a net-lease REIT specializing in acquiring, investing, and managing Single Tenant Operational Real Estate (STORE). With more than 2,500 properties in its portfolio, STORE has no intentions of slowing down and should take advantage of today’s environment to make more acquisitions. If that wasn’t enough, STORE is still trading for about 23.0% less than it was before the market dropped in February.
Investors need to consider the discount, especially since it looks like STORE has enough money to get out of the pandemic better than when it went in. Last, but certainly not least, STORE offers investors a dividend yield of 4.42%, which is expected to grow as the company adds more assets to its portfolio.
STAG Industrial, Inc. (Dividend Yield: 4.84%)
STAG Industrial, Inc., as its name suggests, aims to acquire and manage single-tenant industrial properties across the country. While going public just under a decade ago, STAG appears to have plenty of room left to grow. In particular, STAG looks to be a major player in the e-commerce industry, with companies like Amazon renting from its portfolio. In fact, STAG will look to aggressively add more industrial warehouse space to see the growing demand, which means more growth for investors. At the moment, it looks as if STAG is well-positioned to provide shareholders with both growth prospects and attractive dividend yields. With a dividend yield of 4.84%, STAG offers investors a healthy amount of income backed by solid fundamentals.
Realty Income Corporation (Dividend Yield: 4.68%)
As one of the best high-yield REITs in the sector, Realty Income has spent more than half of a decade acquiring and managing freestanding commercial properties that generate rental revenue under long-term, net lease agreements. Publicly traded on the New York Stock Exchange since 1994, Realty Income has sought to lease real estate with the hopes of paying its shareholders dividends. Dubbed “The Monthly Dividend Company, Realty Income is dedicated to “providing stockholders with dependable monthly income.” Today, Realty Income’s dividend yield is an impressive 4.68%, which it pays out every month.
More importantly, Realty Income is still trading at a discount from the pandemic. Not surprisingly, Realty Income took a hit when the Coronavirus forced many storefronts to close shop. However, most of Realty Income’s tenants are now paying rent, and it looks like the company will be able to maintain their attractive dividend yield until the pandemic runs its course. Investors who get in today may be able to benefit from both growth and a dividend yield that has increased regularly.
UDR, Inc. (Dividend Yield: 3.74%)
As a real estate investment trust, UDR, Inc. has developed a reputation for owning, acquiring, developing, and managing apartment complexes nationwide. Simply put, it is a multifamily REIT that generates cash flow by renting out entire complexes of apartments. In doing so, UDR has been able to maintain a dividend yield of 3.74%, which has kept investors very happy.
Not unlike almost every other company on this list, UDR is trading for less than it was in February (when the market crashed). As a result, UDR is trading for a discount and currently represents a nice value. Investors who get in now may be able to ride a wave of growth, which will simultaneously increase the attractive dividend yield.
Summary
High-yield REITs have become a commodity in income investors’ portfolios. They’re a source of reliable passive income while producing strong results. Investors focused on growing their income often diversify their portfolios by adding REITs. The average yield for REITs was 2.9 percent in 2021, which is more than double of the average yield produced by common stocks. Yields are expected to be strong again in 2022, thanks to growth in the rental market and growth during periods of high inflation.
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