Plenty of real estate investment trusts (REITs) pay dividends, but some of them have much higher yields than the rest. REITs are designed to appeal to income-oriented investors rather than those interested mainly in growth. Sometimes these types of investments deliver both, but the big dividends are usually the main attraction.
REITs are organized to pay out most of their taxable income to investors in the form of dividends. Since they’re often able to raise rents on owned properties, many have the means to keep up with, or sometimes to beat, inflation. The downside is that when inflation wanes, dividends can shrink and prices can drop.
5 REITs With Higher Dividend Yields Than Most
Mortgage REITs earn revenue by using short-term loans with low interest rates to fund long-term mortgage loans at a higher rate. This system works well until rising interest rates squeeze out their margins.
Annaly has been one of the best at managing the inherent risks that come with this type of business model, but it's yet to be seen if the company was prepared for the fast pace of the Fed’s recent rate hikes.
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Global Medical REIT (NYSE: GMRE) now has a 6.9% dividend yield. According to its website, the company targets “properties operated by profitable healthcare systems or physician groups that are at the forefront of delivering needed care in their communities.”
The company’s FFO per share increased nearly 52% over the past year and has grown its total FFO by nearly 66% in the past three years. The REIT’s FFO payout ratio is on the high end at 91.3%, but it’s still within the range that it’s managed to maintain for the past several years.
Penny Mac Mortgage Investment Trust (NYSE: PMT) is paying investors a 12.24% dividend yield at its current price. This is another mortgage REIT, which mainly invests in residential mortgage loans and mortgage-related assets.
The REIT has maintained its current dividend rate of 47 cents per share since the fourth quarter of 2020, but its declining revenue and earnings per share could mean a dividend cut is on the horizon.
Analysts are still optimistic, however, with a consensus price target of $17.75 representing a 14.5% price gain.
Ready Capital Corporation (NYSE: RC) currently has a 12.08% dividend yield and a recent price target from Raymond James of $15 per share. Ready Capital is another mortgage REIT, however, it primarily invests in small to medium-sized balance commercial loans. Most of its loans have a floating rate, significantly reducing the risk from interest rate hikes.
The company grew its revenue by over 30% in the past year and recently completed a $542 million merger with Mosaic Real Estate Credit.
W.P. Carey (NYSE: WPC) has a dividend yield of 4.74% and has remained one of the more resilient REITs through the recent market selloff. The company is one of the largest net lease REITs, specializing in the acquisition of operationally critical single-tenant properties in North America and Europe.
The REIT’s FFO share has increased by 18.1% over the past year and 40.7% over the last three years. It also has one of the more well-covered dividends out of all of the high-dividend REITs with an FFO payout ratio of 77.2%.
Two analysts have increased price targets for W.P. Carey in the past month, with the most recent giving a price target of $94.
The Bottom Line
Reaching for higher-than-usual yields poses risks for investors as broad economic changes can affect income-producing situations. With the expectation of higher interest rates as the Fed battles rising inflation, a close analysis of each type of REIT would be crucial to finding profitable outcomes.
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