It is a difficult environment for investors that need income when interest rates are scraping the bottom of the barrel. With the 10-year U.S. Treasury yield at 0.669%, the ability to generate a consistent return with little to no risk doesn’t exist. It’s pushing income investors into taking more risk to generate the needed return. The following four real estate investment trusts (REITs) are quality businesses that pay over a 4% dividend yield.
If you’re an investor in need of income or a pension fund in need of paying retirees, the current environment is clearly hostile for consistent returns. As the Federal Reserve has turned to the printing press to buy bonds of all shapes, sizes and colors, it has helped suppress interest rates. While the buying has helped maintain the current yields, it was the outlook for inflation that has caused the U.S. Treasury yield curve to collapse and the Fed to cut rates to steepen the curve.
One of the areas to look for to receive income are REITs. These companies primarily invest in real estate or mortgage bonds as a means of generating return. The corporate structure of REITs is as a pass-through entity where the company passes on 90% of their taxable income in the form of a dividend. The structure allows the company to pass on the tax obligation to investors and the investors have the benefit of receiving virtually all the income the company generates. As a result, investors receive a higher rate of dividend income.
The following four REITs are high-yielding investment opportunities for income investors.
High-Yield REIT #1: National Storage Affiliates Trust (NYSE: NSA)
National Storage is an industrial REIT that focuses on self-storage properties. They have ownership interest in over 780 properties located in 35 states. The company currently pays a 4% dividend yield and pays out 84% of its FFO in dividends. They are currently trading at price-to-FFO multiple of 21.64, which is in the middle of its 3-year range.
The overall rating of this REIT is fairly high as the company has sufficient cash flow to pay its dividend and has a reasonable amount of leverage and plenty of cash to meet its interest payments. The price has shown a lot of resilience and its business model is fitting in a recession.
High-Yield REIT #2: Federal Realty Investment Trust (NYSE: FRT)
Federal Realty is one of the few REITs that are also a Dividend Aristocrat. Dividend Aristocrats are S&P 500 companies that have paid and raised its dividend for 25 consecutive years. The company currently pays a 5.22% yield and is trading at near the lowest price-to-FFO ratio in the past three years. As of the last earnings report, the company has a FFO payout ratio of 70%.
The history of paying and raising its dividend is a big deal for those looking for income. It’s business as a retail REIT that invests in the operation and redevelopment of retail-based properties in major coastal markets in the U.S. carries a certain level of risk in the current climate. However, this has suppressed its valuation and makes it an attractive investment with a high yield.
High-Yield REIT #3: National Health Investors Inc (NYSE: NHI)
With an aging population the need for senior housing is significant. National Health Investors invests in such properties along with other medical investments in assisted living, memory care communities, skilled nursing, medical office buildings and other facilities.
NHI currently pays a 7.06% dividend yield with an AFFO payout ratio of 81.67% as of their last earnings report. The price-to-FFO ratio is trading at 11.37, which is near the lowest valuation in the past three years.
The company maintains a reasonable amount of leverage with excellent ability to meet interest obligations at reasonably low interest rates.
High-Yield REIT #4: Store Capital Corp (NYSE: STOR)
Store Capital is a diversified equity REIT that invests in single tenant operational real estate. The company has 2,500 property locations across the U.S. They currently pay a 5.5% dividend yield and has a P/FFO ratio of 13.22, which is near the lowest in the past three years. The current FFO payout ratio is 70%, which provides the company with a buffer if cash flow were to fall.