10 Of The Highest Yielding REITs Analyzed In Detail

Investors looking to generate higher levels of income from their investment portfolios should take a look at Real Estate Investment Trusts, or REITs. These are companies that own real estate properties and lease them to tenants, which generates a steady stream of income. The bulk of their income is then passed on to shareholders, through dividends. You can see all 171 REITs here.

The beauty of REITs, for income investors, is that they are required to distribute 90% of their taxable income to shareholders annually, in the form of dividends. In return, REITs typically do not pay corporate taxes. As a result, many of the 171 dividend-paying REITs we track offer high dividend yields of 5%+.

But not all high-yielding stocks are automatic buys. Investors should carefully assess the fundamentals to ensure the high yields are sustainable. This article will discuss 10 of the highest-yielding REITs around, with market capitalizations above $1 billion. The list excludes mortgage REITs, which have their own unique risk factors. Some of the REITs presented here are high-quality businesses worthy of further consideration, while others should be avoided.

High-Yield REIT No. 10: EPR Properties

  • Dividend Yield: 7.1%

EPR Properties (EPR) invests in three types of real estate—entertainment, recreation, and education. A few examples of the company’s properties include movie theaters, bowling alleys, dining, shopping, ice skating, golf entertainment, ski areas, public charter schools, and private schools. The total portfolio consists of over 400 locations, with a cumulative value of approximately $6.8 billion.

EPR Properties has differentiated its holdings by pursuing properties that offer an experience. While many other types of brick-and-mortar real estate are struggling right now, entertainment and educational properties are still seeing strong traffic, thanks in large part to younger generations like Millennials.

The end result is that EPR Properties has a diversified portfolio that has enjoyed steady growth for many years, with low levels of lease expirations.

EPR Portfolio

Source: 2018 Investor Presentation, page 12

The company’s focused portfolio has yielded strong results in recent years. In the past five years, total revenue and funds-from-operation (FFO) per share increased 14% and 7% per year, on average. In the 2018 first quarter, revenue and adjusted FFO-per-share increased 20% and 6%, respectively, from the same quarter a year ago.

EPR Properties pays a monthly dividend of $0.36 per share, which works out to $4.32 per share on an annual basis. The most recently monthly dividend payout represented a 6% increase from the same monthly dividend last year, and the company has increased its dividend for eight years in a row.

EPR Properties has an investment-grade credit rating of BBB- from Standard & Poor’s, with a target leverage ratio of 4.6x-5.6x. These metrics are in-line with the broader REIT industry. The company’s balance sheet should hold up if interest rates rise moving forward. Approximately 80% of EPR Properties’ debt is fixed-rate, and the company has no significant maturities until 2022.

EPR Properties has a secure dividend, with a payout ratio of 86%. The company is also growing FFO at a strong rate, which should lead to future dividend increases. These qualities make EPR Properties an attractive high-yield REIT.

High-Yield REIT No. 9: Kimco Realty 

  • Dividend Yield: 7.4%

Kimco (KIM) operates in the commercial real estate industry. It is one of the largest owners of shopping centers, with an owned interest in 475 U.S. shopping centers as of 3/31/18. The properties are focused primarily on large cities. Kimco’s property portfolio has enjoyed rising occupancy and rents over the past several years.

KIM Portfolio

Source: 2018 Investor Presentation, page 14

On 4/26/18 Kimco reported strong first-quarter financial results. FFO-per-share increased 5.4% for the quarter, driven by higher occupancy and higher rents. Occupancy increased 80 basis points to 96.1%. Rental rates for new leases rose 15.6%, while those for renewals increased 7.3% for the quarter.

Kimco is looking to property acquisitions to fuel growth. However, the company will still be weighed down, at least in part, by tenant difficulties. Some of its retail tenants include Sears (SHLD), Kmart, and JC Penney (JCP), all of which are in very challenged financial condition, and are likely to continue closing stores.

Fortunately, new openings from Kimco’s more successful tenants more than offset the store closures. The company expects more than 3,000 net new store openings in 2018.

KIM Closures

Source: 2018 Investor Presentation, page 6

Kimco will continue to sell under-performing properties to raise cash to pay off debt and reinvest in other locations. For example, during the first quarter Kimco disposed of 21 shopping centers for proceeds of $210 million.

These efforts have worked well for the company, as Kimco has a stronger balance sheet than many other commercial REITs. Kimco has a credit rating of BBB+, and an average debt maturity of 10.7 years. In addition, Kimco expects FFO-per-share of $1.42 to $1.46 for 2018. With an annual dividend of $1.12 per share, Kimco is likely to have a payout ratio below 80% for 2018, which indicates a sustainable dividend.

High-Yield REIT No. 8: Geo Group 

  • Dividend Yield: 7.7%

Geo  (GEO) operates a diversified portfolio of correctional, detention, and residential treatment facilities. It provides these services to government agencies around the world. The company has operations in the United States, Australia, South Africa, and the United Kingdom. Geo owns and/or manages a total of 141 facilities.

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