Big-Dividend REITs: Ranking The Best And Worst

Chatham Lodging Trust (CLDT): Worth noting, we do like the 6th worst performer on the list, Chatham Lodging Trust. Chatham is a hotel REIT with a big 7.1% dividend yield (paid monthly), and significant price appreciation potential. The market has dramatically overreacted to slowing growth among hotel REITS, and Chatham in particular offers an attractive investment opportunity for long-term income-focused investors because of its attractive locations, attractive valuation, and potential for more dividend increases. We liked Chatham when we first wrote about it several months ago, and we like it even more now. You can read our previous report on Chatham here: This Big-Dividend Hotel REIT has Big Upside.

2. Don’t Chase After the Best Performers Either

Many investors make the mistake of investing in whatever has performed the best recently. However, as value investors, it’s hard for us to get excited about Communications Sales (CSAL), the best-performing REIT in our table, which is up 74.1% year-to-date. Despite CSAL’s big 7.6% dividend, it has an enormous amount of debt, very little net income, and an extremely short track record since being spun off from Windstream Holdings.

Stag Industrial (STAG): However, we do like the 7th best performer in our table, Stag Industrial. Specifically, Stag’s shares have fallen 12% since August 1st, and its dividend yield (paid monthly) has risen to 6.3% (annually). And despite Stag’s unique risk exposures (i.e. secondary/tertiary industrial properties that institutional investors usually avoid), we like it because of its diversified approach, reasonable valuation, continued growth opportunities, and big monthly dividend. (Note: our recent full write-up on Stag can be accessed using the link at the beginning of this article titled Top 10 Big Dividend REITs worth considering).

3. A Bigger Yield Isn’t Always Better

Just because something offers a big yield doesn’t mean it’s a better investment than something with a lower yield. For example, Annaly Capital (NLY) offers a big dividend yield (10.5%) but we’re not attracted to it. We believe Annaly is basically a one-trick-pony at the mercy of the capital markets. And even though it may have the financial wherewithal to maintain its big dividend for more than the next few quarters, its asset value and share price are in peril, and so is the company’s long-term dividend sustainability. Plus the recent Hatteras acquisition is an ominous reminder of the atrocious yield curve and Annaly’s shrinking balance sheet (You can read our full Annaly report here).

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Disclosure: None.

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