In a perfect investment world, all real estate investment trust (REIT) stocks would never lose 30% or more of their value, would pay safe and stable high-yielding dividends with no cuts and their funds from operations would easily cover the dividends each quarter.
But 2020 is far from the perfect investment world, and REIT stocks are among the worst-performing stocks this year. Inflation, followed by multiple interest rate hikes and fears of a deep recession, has slashed the prices of almost all REITS, culminating in highly inflated dividend yields.
But some income investors are not daunted by the volatility. As long as dividends are stable, and they receive monthly or quarterly income on a regular basis, they are happy. Here are three REITs that suffered huge losses in 2020 but are now making massive dividend payments with outstanding yields.
Office Properties Income Trust OPI is a Massachusetts-based real estate company that owns, leases and manages office space. It has 171 properties with a solid tenant base, including a high percentage of government offices.
Despite this, Office Properties Income Trust has had declining revenue and earnings per share over the past three years. Current occupancy rates of 89.4% are a bit low. Second-quarter 2022 earnings per share (EPS) came in at negative $16 million. However, funds from operations (FFO) for that quarter was $1.22, well beyond the 55-cent dividend paid to shareholders.
Office Properties Income Trust pays a $2.20 annual dividend that presently yields a massive 15.3%. The stock touched a 52-week low recently of $12.21 but has since bounced up to over $14 per share.
Necessity Retail REIT Inc. RTL is a New York-based retail REIT that owns, leases and operates single-tenant and open-air grocery centers for long-term tenants.
Necessity Retail REIT operates over 1,050 properties with 29 million rentable square feet across the U.S., mostly in the Southeast. Its tenants include Best Buy Co. Inc., Bank of America Corp., Home Depot Inc., Publix Super Markets Inc., BJ’s Wholesale Club Holdings Inc., Burger King, Chevron Corp. and many other well-known names.
The 52-week price range is $5.46 to $9.48. Necessity Retail REIT pays an annual dividend of 85 cents that currently yields 14.6%. FFO from its most recent quarter was 95 cents, so the dividend is well covered. But revenue and EPS have been mixed this year. In May, JMP Securities analyst Arron Hecht initiated coverage on Necessity Retail REIT with a market perform rating. There have been no new analyst ratings since.
Global Medical REIT Inc. GMRE is a Bethesda, Maryland-based healthcare REIT that owns specialized facilities it leases to healthcare systems and physician groups. Global Medical REIT owns and operates 181 buildings across the U.S. and serves 227 tenants.
The 52-week range is $7.01 to $18.51, and the shares are presently about 6% above recent lows. The annual dividend is 84 cents, which yields 11.4%. Second-quarter FFO was 24 cents, so the FFO was just barely covering the 21-cent quarterly dividend.
Revenue has risen over the past two quarters, but the EPS has declined. The next earnings date is during the first week of November.
As always, investors seeking appreciation should do their homework before buying any REIT stock, but that’s especially true when considering one with such a high dividend yield. Such stocks are often market laggards. But for income-only investors, REITs like these can be quite lucrative.
Today's Private Market Insights:
- QC Capital launched its latest real estate fund with a target annualized return of 15% to 19%
- Palladius Real Estate Fund I, LP has reopened for investment on the RealtyMogul platform. The fund has a target IRR of 17.5%
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