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Investors looking for high dividend yields often turn to more defensive sectors. These include dividend favorites such as consumer staples, utilities, and healthcare. But a sector that has consistently provided strong yields is that of real estate investment trusts, or REITs.

REITs exist virtually entirely to generate income that is then substantially completely returned to shareholders via dividends. In this way, REITs can be an excellent way to generate passive streams of income.

In this article, we’ll look at three high-yield REITs that we like for their very strong current dividend yields.

W.P. Carey (WPC)

W.P. Carey is a commercial real estate focused REIT that operates two segments: real estate ownership and investment management. The REIT operates more than 1,200 single tenant properties on a net lease basis, across the US and Northern and Western Europe.

For its fiscal third quarter, W. P. Carey reported that its revenues totaled $449 million, which was 17% more than the revenues that W. P. Carey generated during the previous year’s period. Revenues came in slightly below the analyst consensus estimate, missing it by $1 million.

During the third quarter, the trust was as profitable as the analyst community had expected, as funds-from-operations came in at $1.32 on a per-share basis, hitting the consensus estimate perfectly. Funds-from-operations were down by 3% on a per-share basis compared to the previous year’s quarter.

W. P. Carey recently reduced its quarterly dividend by 20%, ending a long streak of 28 consecutive years of dividend increases. This is largely explained by the company exiting its office business, via a combination of the sale of one portion of the office portfolio while the other portion of the portfolio is being spun off.

At the current level, the dividend looks sustainable with a dividend payout ratio around 65%. WPC stock yields 5.8%.

SL Green Realty (SLG)

SL Green Realty Corp. (SLG) was formed in 1980. It is an integrated real estate investment trust (REIT) that is focused on acquiring, managing, and maximizing the value of Manhattan commercial properties. It is Manhattan’s largest office landlord, and currently owns 60 buildings totaling 33 million square feet.

In late January, SLG reported (1/24/2024) financial results for the fourth quarter of fiscal 2023. Its same-store net operating income grew 3.9% over the prior year’s quarter and its occupancy rate edged up sequentially from 89.9% to 90.0%.

SLG benefits from long-term growth in rental rates in one of the most popular commercial areas in the world, Manhattan. The REIT pursues growth by acquiring attractive properties and raising rental rates in its existing properties. It also signs multi-year contracts (7-15 years) with its tenants in order to secure reliable cash flows. SLG has grown its funds from operations per share at a 3.0% average annual rate in the last decade.

SLG can maintain its attractive 6.5% dividend, which is well covered by cash flows, with a healthy payout ratio of 50%. SLG is thus suitable for income-oriented investors who can wait patiently for the recovery of the REIT from the pandemic. SLG stock yields 7%.

Crown Castle International (CCI)

Crown Castle International is a powerhouse in the data infrastructure business. It is structured as a real estate investment trust, or REIT, and operates cell phone towers with small cells where larger towers are not feasible, and fiber connections for data transmission. The trust owns, operates and leases more than 40,000 cell towers and 80,000 route miles of fiber across every major US market, helping it to support data infrastructure across the country.

Crown Castle posted fourth quarter and full-year earnings on January 24th, 2024, and results were better than expected on both the top and bottom lines. Funds-from-operations came to $1.82, which was eight cents better than expected. It was also up from $1.77 in the third quarter. Revenue was $1.67 billion, down 5.1% year-over-year, but slightly ahead of estimates. Site rental revenue was $1.6 billion, up from $1.58 billion in Q4 of last year. The company reiterated its guidance for 2024, with adjusted FFO set to be near $6.90.

The trust’s robust cash flow generation will afford it the opportunity to continue to pay the ample dividend. The current payout ratio is 91% of FFO. We forecast continued relatively modest increases in the payout, around that of FFO growth, and we believe the payout is safe. CCI stock yields 5.8%.

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