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Everyone is looking for high-yield stocks, and Real Estate Investment Trusts (REITs) are among the best places to find stocks with high dividends and a strong track record. But REITs are not created equal, and the highest-yielding REITs can cost you more than you ultimately earn.
Here are the highest-yielding REITs in the stock market – and why you’ll want to look at safer choices.
The highest yielding REITs on the market
These are the highest-yielding equity REITs trading on the major US stock exchanges as of February 2, 2024.
| Company (ticker symbol) | Sector | Dividend yield |
|---|---|---|
| Source: Morningstar | ||
| Medical Properties Trust (MPW) | healthcare | 27.0% |
| Global Net Lease (GNL) | Diversified | 16.7% |
| AGNC Investment (AGNC) | Mortgage | 14.9% |
| ARMOR Residential REIT (ARR) | Mortgage | 14.7% |
| Ellington Financial (EFC) | Mortgage | 14.4% |
| Chimera Investment (CIM) | Mortgage | 14.3% |
| KKR Real Estate Finance Trust (KREF) | Mortgage | 14.0% |
| Two Ports Investment (TWO) | Mortgage | 14.0% |
| Ares Commercial Real Estate (ACRE) | Mortgage | 13.8% |
| Brandywine Realty Trust (BDN) | Office | 13.6% |
These returns are at real nosebleed levels, suggesting they may not be sustainable. When returns reach such high levels, it indicates that investors are skeptical that the company will be able to continue paying out in the future. But you’ll have to investigate why that might be the case.
This list is particularly dominated by mortgage REITs, a specialized type of company that buys mortgages and finances them with borrowed money. Mortgage REITs’ payouts depend significantly on interest rates, which fluctuate over time.
Major reasons why a dividend yield can be high include:
- The dividend will grow slowly: Investors consider the total return they are likely to get from a stock, including both the current yield and any growth in the payout. High returns imply that the payout is unlikely to grow substantially in the future, if at all. So if the payout is unlikely to increase, investors now demand compensation with a higher return.
- The company is in serious trouble: A stock’s indicated yield is also likely to be high when a company is in serious trouble and investors are devaluing the stock ahead of a dividend cut. The dividend is the easiest place for a company to access cash flow for those who need it, although some companies can quickly fall apart if their problems become too acute.
- The dividend is variable and will probably decrease: Some REIT payouts are variable in nature, for example from mortgage REITs such as AGNC Investment and Annaly Capital. So investors are likely pricing them at high yields today because they expect the payout to fall in the future, and the stock price will likely go along with it.
- Investors remain skeptical: Even if there is ultimately no fundamental reason, a REIT can deliver high returns because investors simply remain skeptical that returns won’t last. Although investors are often proven right in time, they are not always right.
So when you’re looking at high-yield dividend stocks or REITs, you want to know if the payout is sustainable, rather than simply buying the stock and hoping the payout remains stable. You need to carefully assess the company and its financial situation to see what the future may bring.
But as Warren Buffett says, there are no so-called strikes in investing. So you can choose what you want to invest in, and you have many more attractive options in the REIT world.
The high-yield REITs you should look for instead
Instead of aiming for the highest REIT returns, it is often better to adjust your expectations and look for lower and more sustainable returns. Returns around 5 or 6 percent are usually high, but can be sustainable if the company is on solid footing. Here are some REITs in that area.
| Company (ticker symbol) | Sector | Dividend yield |
|---|---|---|
| Boston Properties (BXP) | Office | 6.0% |
| Apple Hospitality REIT (APLE) | Hotel & Motel | 5.9% |
| Crown Castle (CCI) | Specialty | 5.6% |
| LXP Industrial Trust (LXP) | Industrial | 5.6% |
| Real estate income (O) | Retail | 5.6% |
| W. P. Carey (WPC) | Diversified | 5.5% |
| CareTrust REIT (CTRE) | Healthcare facilities | 5.3% |
While this payout level may be safer overall, you’ll still want to research the company and its financials when investing in individual stocks. A useful thing to look for here too is how much the payout has grown over time. A growing payout indicates not only that the company is healthy, but also that management sees that payout as a way to reward shareholders.
Realty Income, for example, has an enviable track record of increasing payouts since going public in 1994. The company has increased its dividend in 105 consecutive quarters, averaging about 4.3 percent annually since its market debut. That record puts it among a group of solid income stocks called the Dividend Aristocrats, and it also ranks among a handful of monthly dividend stocks.
If you don’t feel comfortable with the type of financial analysis required to invest in individual stocks, another option is to buy a top dividend fund, which includes many different dividend stocks. You benefit from the relative safety of diversification and can still earn an attractive payout. You can even buy a dividend fund that focuses on REITs, if that’s what you’re looking for.
Finally, if you’re looking for attractive dividends, it may be worth seeking out an experienced financial advisor who has that kind of expertise. Bankrate offers a financial advisor matching tool that allows you to match clients with advisors in their region in minutes.
In short
Investors looking for the highest returns in the REIT world should be careful not to buy stocks that are about to fall, costing them more money than they would make with the higher payout. Smarter investors continue to hold on to stocks with lower but proven dividends, especially those whose payouts have risen over the years, even decades, allowing the stock to soar higher and higher.
