3 REITs With Shockingly High Dividend Yields

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Industry experts predict the real estate sector will register slowed economic growth in 2023 amid higher-than-average inflation levels and growing recession fears. And real estate investment trusts (REITs) have historically remained well-positioned to weather economic uncertainties. 

Even though rental rates have been cooling over the past couple of months, they are significantly higher than in 2021. Strong rental pricing should allow properties to improve their balance sheets and liquidity to cushion the impact of a recession. 

“If the U.S. economy slows significantly, we still believe the property types best positioned will be the ones benefiting from secular tailwinds that will support attractive relative earnings growth,” said Arthur Hurley, senior portfolio manager at Columbia Threadneedle Investments.

But the Federal Reserve’s hawkish stance is still a cause for concern. Despite slowing inflation, the Federal Open Market Committee (FOMC) stated its intention to maintain its aggressive rate hikes in the near term, decreasing the chances of a soft landing. 

While well-positioned REITs are expected to breeze through an impending recession, fundamentally weak trusts might be in for more pain. Take a look at a few REITs with alluring dividend yields. 

Invesco Mortgage Capital

With an 18.5% forward dividend yield, Invesco Mortgage Capital Inc. IVR is first on this list. Shares of the mortgage REIT (mREIT) have remained popular among dividend and fixed-income investors, as they gained 24.2% over the past three months and 10.9% year to date. 

But Invesco Mortgage Capital’s financials and growth prospects paint a different picture. The REIT’s revenue and profit margins took a hit because of the Fed’s hawkish monetary stance and quantitative tightening policies. For the fiscal third quarter that ended Sept. 30, Invesco Mortgage Capital’s net interest income fell by nearly $10 million, or 22.8% year over year, to $31.7 million. Net loss per share amounted to $2.78, while economic return stood at negative 16.8%. 

The mREIT’s dividend payout history is concerning as well, as its dividends declined at a 44.9% compound annual growth rate (CAGR) over the past three years and at a 19.2% CAGR over the past five years. In 2020, Invesco Mortgage Capital slashed its annual dividend per share to $10.70 from $18.50 in the prior year, despite the strong market trends. Invesco Mortgage Capital currently pays $3.50 in dividends annually. 

The Necessity Retail REIT

The Necessity Retail REIT Inc. RTL is a New York-based retail REIT with a 12.96% dividend yield. Shares of Necessity Retail have surged 10.6% year to date, outperforming the benchmark S&P 500 index’s performance so far this year. The REIT’s tenants include Dollar General, ExxonMobil, FedEx and Bank of America


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Thanks to the post-pandemic tailwinds in the retail real estate space, Necessity Retail’s revenue rose 26.4% year over year to $116.2 million in the third quarter of 2021, which ended on Sept 30. The REIT’s adjusted funds from operations (AFFO) per share rose 18% from the fourth quarter of 2021 to $0.26 in the third quarter of 2022.

"We had an excellent third quarter, highlighted by leasing over a million square feet, the highest level since our listing, and increasing our executed and pipeline occupancy to almost 93% in our multitenant portfolio," said Michael Weil, CEO of The Necessity Retail REIT. 

This trend will likely continue as the REIT has been taking active steps to cement its position in the retail real estate space through contract renewals and acquisitions. Necessity Retail executed 42 multitenant lease renewals in the fiscal 2021 third quarter.

ARMOUR Residential REIT

ARMOUR Residential REIT Inc. ARR invests in fixed residential mortgage-backed securities issued or guaranteed by federal government entities. The Maryland-based REIT pays $1.20 in dividends annually, yielding 19.83% on the current stock price. This is higher than the average 3.43% dividend yield rate for residential REITs, according to Nareit. 

But ARMOUR Residential’s attractive yield rate might be a trap. Looking back at its dividend payout history, the REIT has slashed its dividend payouts by 17.5% per annum over the past three years. 

The residential REIT’s cash-flow margins remain unstable, which might impact its ability to sustain its dividend payouts. ARMOUR Residential’s net operating cash flow came in at $16.67 million for the nine months that ended Sept. 30, reflecting a 31.6% decline year over year from $24.38 million reported for the first three quarters of 2021.

Several analysts have downgraded ARMOUR Residential stock and reduced its price target since October last year. B. Riley Financial Inc. issued a Neutral rating for the stock with a price target of $6, down from the previously issued target of $8.50. Credit Suisse Group also lowered its price target for the residential REIT to $5.50 two months ago.

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