Best High-Yield REITs

Quick Look: The Best High-Yield REITs

• Omega Healthcare Investors
• Spirit Realty Capital
• Medical Properties Trust

These High-Yield REITs are looking like a solid bet to provide consistent long-term income.

Real estate investing is among the biggest and broadest markets around the world. Purchasing a property can be an expensive ordeal and financing it can be daunting for new investors. But unlike traditional real estate investing, real estate investment trusts (REITs) give you a chance to diversify your portfolio at a fraction of that cost.  Thus, income-producing real estate can become an attainable asset class for many investors. Private REITs, equity REITs and a host of segments of the industry offer an annual percentage yield similar to an investment in an exchange-traded fund, and you can still enjoy the capital gains that come with partnership in a real property.

REITs are companies that own and operate real estate properties that produce income through rental agreements. These properties include office spaces, shopping malls, apartments, hotels, resorts, storage facilities and warehouses. You can own shares of premium real estate properties in prime locations by investing in REITs. It is an affordable alternative to purchasing properties directly or investing in a private real estate fund.   

The Best High-Yield REITs to Check Out This Month

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 can 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 this month 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 owns a portfolio of skilled nursing and senior housing facilities throughout the United States and the United Kingdom. The company leases its properties to some of the top operators in the world under triple-net leases, most of which are tied to master leases. 

There’s no doubt that Omega Healthcare Investors has been affected by the pandemic, but the company has proven its ability to remain resilient. Its 2021 revenue and funds from operations (FFO) have remained strong and in line with pre-pandemic levels, and the REIT continued to make solid property and mortgage loan investments throughout the year. 

Omega broke its 17-year streak of annual dividend increases in 2021, which was disappointing to many investors. However, it was a responsible move on the management team’s part and is keeping the REIT in a strong position to continue its growth and to provide future dividend increases. 

As of this writing, Omega Healthcare Investors has an impressive dividend yield of 8.82% with dividend increases over the next couple of years likely. While the current FFO payout ratio of 80.68% may seem risky, the company has successfully managed a similar, or higher, payout ratio for the past several years. 

2. Spirit Realty Capital

Spirit Realty Capital (NYSE: SRC) is a net-lease REIT with a portfolio of essential retail, industrial and office properties throughout the United States. Some of the company’s top tenants include Life Time Fitness, BJ’s Wholesale Club and Home Depot. 

While the REIT’s share price suffered a major blow from the COVID-19 pandemic, the company’s financials remained relatively unphased and has even increased its FFO significantly in 2021. 

Spirit Realty Capital has also been taking positive steps to increase the quality of its real estate portfolio and strengthen its balance sheet, setting the REIT up for future growth. 

As of this writing, Spirit Realty Capital has a dividend yield of 5.35% and a relatively modest FFO payout ratio of 70.77% after increasing its dividend in Q3 2021. Based on the company’s history of maintaining a payout ratio in the 80% to 90% range, there are two likely scenarios for this REIT over the next few years; further dividend increases or maintaining its dividend in order to fund growth. Either scenario is a win for investors. 

3. Medical Properties Trust

Medical Properties Trust (NYSE: MPW) is a promising healthcare REIT with a portfolio of specialty hospitals and rehabilitation facilities throughout the United States, Europe and Australia. 

While most REITs were struggling to maintain what they had throughout 2020 and the first half of 2021, Medical Properties Trust was busy taking advantage of opportunistic acquisitions to grow its portfolio. In the past two years, the REIT has managed to almost double its revenue and FFO.

As of this writing, Medical Properties Trust has a dividend yield of 4.83% with a conservative FFO payout ratio of 63.5%.

Since the REIT’s revenue and cash flow have been growing faster than its dividend, there’s a good chance that investors will be able to benefit from continuous yield growth as well as price appreciation.

Comparing The Top 3 High-Yield REITs

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.

Highest Dividend REIT Sectors

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, they 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 to 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 to terms you should know for understanding 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) 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.