Income investors love real estate investment trusts (REITs) because of the high dividend yields they offer. And most REITs now have higher than normal yields because of the rising interest rates the Federal Reserve has initiated this year to combat inflation and the subsequent price declines of the entire REIT sector as a result.
But investors need to make sure that the higher yields are well covered by the REIT’s quarterly funds from operations (FFO) so that the same or better dividend can continue to be paid into the future. If the quarterly FFO cannot support the dividend, the company begins to bleed cash and may have to cut the dividend going forward.
Here are three REITs with dividend yields above 8% and a look at each company’s ability to continue paying out those dividend yields going forward.
Omega Healthcare Investors Inc. OHI is a Hunt Valley, Maryland-based healthcare REIT that owns, leases and operates 63 skilled nursing and assisted living facilities in both the U.S. and U.K. All leases are triple net.
Through 2021, Omega Healthcare Investors had given its investors a 214.2% total return over a 10-year period. The 52-week price range is $24.28 to $33.71.
Omega Healthcare Investors pays an annual dividend of $2.68, for a generous yield of 9.03%. Over the past five years the dividend has been stable but has only grown by 3%. Second-quarter funds from operations (FFO) was only $2.48, so caution is advised because the current dividend is not being covered by FFO at this point. The next earnings report is still a month away.
One Liberty Properties Inc. OLP is a Great Neck, New York-based diversified REIT that owns and manages retail, office and industrial properties under long-term triple net leases.
The annual dividend of $1.80 currently yields 8.5%, more than 1% above its five-year average. Over the past five years the quarterly dividend of 45 cents has not grown at all but has been stable with no cuts or eliminations.
Second-quarter FFO was 49 cents, which missed Wall Street’s estimate by a penny but was also a penny higher than the year-ago quarter. The dividend was covered but not by much.
Piedmont Office Realty Trust Inc. PDM is an Atlanta-based office REIT that purchases and leases Class A offices in core markets across the Eastern and Southeastern U.S. Piedmont Office Realty Trust owns over $5 billion worth of assets.
Piedmont Office Realty Trust pays an annual dividend of 84 cents presently yielding 8.4%, well above its five-year average of 4.79%. The dividend has been stable over the past five years but has not grown at all.
Second-quarter FFO came in at 50 cents, so the dividend is well-covered. Although the dividend is long overdue to be raised, Piedmont probably won’t do so with the yield at such high levels. The 52-week range is $9.89 to $19.84, and the low was reached in its last trading session.
While Piedmont Office Realty Trust looks like the proverbial falling knife on the charts, when the price begins to stabilize, the inflated yield and fairly safe dividend could make this stock a good one to own for income-oriented investors.
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