3 Top REITs For Income Investors

Real estate investment trusts, or REITs, can be excellent vehicles for generating high dividend yields. Because of their structure, REITs have to pay out the vast majority of income in the form of dividends.

With the average yield of the S&P 500 Index at a low yield of 1.3%, it is not difficult to find shares of REITs trading with nearly four times the income of the market index.

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This article will examine three of our top REITs yielding at least 5%, including:

  • Brandywine Realty Trust (BDN)
  • VICI Properties Inc. (VICI)
  • W.P. Carey Inc. (WPC)

Brandywine Realty

The first REIT on our list is Brandywine Realty, which specializes in owning, developing, leasing, and managing industrial, office, retail, and mixed-use properties in the U.S.

Brandywine Realty’s portfolio largely consists of urban and transit-oriented office buildings in suburban areas surrounding major cities in the mid-Atlantic area. Three-quarters of operating income comes from the Philadelphia area, 22% from Austin and the remainder from Washington, D.C.

At the present, Brandywine Realty isn’t especially diversified. That said, the trust’s main two areas of operation, Philadelphia and Austin, have some advantages working in their favor. Philadelphia is home to the highest growth rate of highly educated citizens since 2008. More than three-quarters of all pharmaceutical companies in the U.S. have offices in the area as well.

Austin ranks as the fastest-growing metropolitan area in the country. The area is also home to some major names in technology, such as Oracle Corp. (ORCL) and Tesla Inc. (TSLA). Tesla, in particular, could be a tailwind for Brandywine Realty as many companies that provide services to the name may follow the electric vehicle maker to the area. These two regions are two that have already come back from the worst of the pandemic.

Brandywine Realty has distributed the same dividend amount for 13 consecutive quarters, which isn’t the first time the company has done this over the last decade. Investors looking for income growth might be disappointed by the trust.

Still, income investors will note that shares yield 5.3% today, more than four times the average yield of the market index. While the dividend hasn’t been raised in several years, it doesn’t appear at risk for a cut either. Brandywine Realty has a projected payout ratio for 2021 of just 55%, extremely low for a REIT, and nearly in-line with the trust’s 10-year average payout ratio of 50%.

VICI Properties

Next up is VICI Properties, which owns a leading portfolio of gaming, hospitality, and entertainment destinations.

VICI Properties was formed at the end of 2017, following a spin-off from Caesars Entertainment (CZR). Currently, the trust has nearly 30 gaming facilities that account for 47 million square feet. VICI Properties also has close to 18,000 hotel rooms as well as 200 bars, night clubs, restaurants, and golf courses.

Perhaps the most famous of the trust’s holdings is Caesars Palace. Caesars Entertainment generates the bulk for rental revenue, rendering VICI Properties less diversified than we normally would prefer.

The good news is that VICI Properties is taking steps to diversify its business. The company agreed to purchase MGM Growth Properties (MGP) for $17.2 billion last summer. When the deal closes in the first half of 2022 VICI Properties will have 10 properties on the Las Vegas Strip, making the trust the largest experimental REIT.

VICI Properties offers a 5.1% dividend yield at the moment. The trust didn’t make its first dividend until 2018, but the distribution has been raised every year since. This includes two dividend increases in 2020 when in-person gaming was severely curtailed as a result of the pandemic. VICI Properties has an expected payout ratio of just 69% for 2021, well below the 80% payout ratio that the trust has averaged over the last three years.

W.P. Carey

Our last REIT to consider is W.P. Carey, which is primarily focused on leasing single-tenant properties. The trust also has a smaller investment management business.

W.P. Carey is blessed with an extremely high property inventory of more than 1,200 single-tenant facilities. The trust’s property types include office, industrial, warehouse, and retail.

The trust offers diversification in other ways, separating itself from most names in the industry. Two-thirds of properties are in the U.S., but W.P. Carey has numerous in western and northern Europe. This diversification helps to protect the trust in case one region is experiencing challenges.

W.P. Carey has also been aggressive in growing its property portfolio. The trust has invested more than $10 billion over the decade in expanding its portfolio. W.P. Carey has also expanded its share count form 40 million in 2011 to more than 170 million as of the most recent quarter in order to acquire new properties.

Unlike most companies, W.P. Carey raises its dividend almost every quarter, instead of just once per year. This does allow for some quicker compounding of income. The year-over-year increases have remained quite muted over the past few years, including the less than 1% raise shareholders saw in total in 2021. The low dividend growth can be attributed, at least partially, to the share count quadrupling since 2011.

On the plus side, W.P. Carey offers a dividend yield of 5.3%. The payout ratio is projected to be 84% for 2021, which is above the 10-year average payout ratio of 75%. The expected payout ratio for the year is closer to the five-year average of 80%. Investors will likely see minimal dividend growth going forward, but will still enjoy the high yield that the trust offers.

Final thoughts

REITs are a popular source of income for investors as they can offer very high yields. Brandywine Realty, VICI Properties, and W.P. Carey are three REITs with solid business models that provide high levels of dividend income. Each has a leadership position in its industry and provides a dividend that looks safe, though future growth from W.P. Carey figures to be on the small side. For investors requiring safe and secure income, each REIT could be a solid addition to the portfolio.

Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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