Build A Basket Of High-Yielding Yet Safe REITs

·4 min read

Income investors are always on the hunt for higher-dividend yields, but too often stocks with high-dividend yields can be yield traps that are at risk of being cut.

But higher yields do not always make a stock risky. Sometimes yields rise because a sector is out of favor because of economic conditions. That’s been the case since May 2022 with real estate investment trusts (REITs), as inflation and interest rate hikes have decimated the share prices of many REITs from what they were in 2021.

Here are four high-yield REITs you can use to create a basket of high income for paying living expenses. Most have already had much of their risk discounted.

Global Net Lease Inc. (NYSE: GNL) is a New York-based diversified international commercial property REIT with 309 properties across 11 countries. Its 138 tenants are spread across 51 different industries.

On Feb. 23, Global Net Lease reported fourth-quarter operating results. Revenue of $93.9 million was slightly ahead of consensus estimates, but funds from operations (FFO) of $0.24 missed the estimates by $0.13.

There were some positives from the quarterly report. Global Net Lease reported a 98% occupancy rate, with a remaining weighted average lease term of eight years. In addition, 94.5% of its leases contain rent increases based on annualized straight-line rent.

Global Net Lease continues to pay out a $1.60 annual dividend, for an 11.24% yield, making it a great high-yielding stock for income investors. The dividend has grown 122% over the past five years. The diversification of this REIT and its strong lease rate also bodes well for it in the future.

Ladder Capital Corp. (NYSE: LADR) is a New York-based mortgage REIT (mREIT) that finances commercial real estate projects with an emphasis on senior first mortgage fixed- and floating-rate loans.

Ladder Capital has demonstrated a stable share price in recent years, especially compared with its mREIT peers. Over the past 52 weeks, in a very tough environment for mREITs, Ladder Capital has had a total return of 8.55%.

On Feb. 15, analyst Jade Rahmani of Keefe, Bruyette & Woods maintained an Outperform rating on Ladder Capital while raising the price target from $12 to $13.

Although it cut its dividend from $0.34 to $0.20 during the early months of COVID-19 in 2020, Ladder Capital has since raised its dividend twice to its present $0.23 quarterly level. The annual dividend of $0.92 yields 8.23%.

Service Properties Trust (NASDAQ: SVC) is a Newton, Massachusetts-based diversified REIT with a portfolio of 238 hotels and 765 service-focused net lease retail outlets that covers 46 states, Puerto Rico and Canada.

Service Properties Trust had a great fourth quarter. FFO of $0.44 was $0.08 ahead of estimates and well above FFO of $0.17 in the fourth quarter of 2021. Revenue of $455.22 million beat the estimates by $10.35 million and was 8.03% better than $421.38 million in the fourth quarter of 2021.

Service Properties Trust’s annual dividend of $0.80 yields 7.1%. In 2020, Service Properties Trust cut its quarterly dividend from $0.54 to $0.01. In October, it was raised to its current $0.20 per share.

Easterly Government Properties Inc. (NYSE: DEA) is an office REIT that acquires, develops and manages Class A commercial properties and leases them to government agencies through the General Services Administration. Easterly Government Properties owns a total of 86 properties across 26 states. Its occupancy rate is above 99%.

Fourth-quarter earnings were mixed. FFO of $0.30 was down from $0.32 in the fourth quarter of 2021, but revenue of $73.51 million beat the analysts’ estimates of $72.03 million and was an improvement over revenue of $71.63 million in the fourth quarter of 2021.

Because government agencies are unlikely to default on paying their rent, Easterly Government Properties is not likely to suffer from vacancies, even in a recessionary climate.

The quarterly dividend is $0.265, and the annual dividend of $1.06 yields 6.92%. While its dividend growth has been flat over the past five years, Easterly Government Properties has never cut or suspended its dividend.

The occupancy rate plus dividend history make this an income REIT that could be a stable addition to an income basket.

Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.

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