Real estate investment trusts, or REITs, have become a popular investment for those seeking real estate exposure. REITs allow investors to benefit from the income streams generated by the underlying properties, while also enjoying the liquidity offered by stocks. By buying REITs, investors can own real estate indirectly with minimal barriers to entry.
“One of the main reasons to own REITs is the potential for stock-like performance while possessing a lower correlation with other asset classes,” says Richard Gardner, CEO at Modulus. “Hence, adding REITs can provide an investor’s portfolio with diversification benefits,” says Gardner.
[Sign up for stock news with our Invested newsletter.]
Because REITs are required to pay at least 90% of their taxable income to investors as a distribution, they often have higher-than-average yields. “A high-yield REIT generally has a yield of around 5%, but there is no hard-and-fast rule,” says Paul Peeler, financial advisor at Integrated Financial Group.
Because of their high yields, REITs should be held in tax-advantaged accounts, such as a Roth IRA, whenever possible. “While the tax-efficiency of high-yield REITs varies by investor tax bracket and REIT type, overall, their distributions are taxed at a higher rate than qualified dividends,” Peeler says.
Here are eight of the best high-yield REITs to buy in 2023, based on the holdings of the Global X SuperDividend REIT ETF (ticker: SRET). “SRET invests in 30 of the highest-yield REITs globally while employing a volatility screen to minimize exposure to distressed REITs,” says Rohan Reddy, director of research at Global X ETFs.
— Getty Realty Corp. (GTY)
— KKR Real Estate Finance Trust Inc. (KREF)
— Blackstone Mortgage Trust Inc. (BXMT)
— W.P. Carey Inc. (WPC)
— Physicians Realty Trust (DOC)
— National Storage Affiliates Trust (NSA)
— Easterly Government Properties Inc. (DEA)
— Highwoods Properties Inc. (HIW)
Getty Realty Corp. (GTY)
GTY operates a diverse portfolio of over 900 retail petroleum properties, with a focus on leasing to convenience store operators and gasoline distributor tenants. “This diversification across both property types and tenants helps to minimize risk and increase stability in the face of any single market or tenant-specific challenges,” Reddy says.
“GTY operates in a different vertical than the usual commercial office and residential real estate segments, which can offer diversification benefits,” says Reddy. The REIT continues to grow, announcing over $157 million invested across 52 properties and the acquisition of 28 convenience stores and car washes in 2022. GTY currently pays a dividend yield of 4.8%.
KKR Real Estate Finance Trust Inc. (KREF)
Investors willing to venture outside the usual equity REITs can consider mortgage REITs like KREF. These REITs do not own properties. Rather, they make investments in mortgages or mortgage-backed securities. As a mortgage REIT, most of KREF’s revenue is derived from interest income. These REITs tend to have lower capital appreciation potential but can pay out high distributions.
Case in point: KREF currently pays a strong dividend yield of 10.8%, but has displayed a declining share price since May 2017. The underlying assets in this REIT largely consist of senior loans, mezzanine loans and preferred equity secured by commercial real estate properties.
Blackstone Mortgage Trust Inc. (BXMT)
Investors interested in mortgage REITs can also consider BXMT. This REIT is affiliated with the renowned alternative investment management firm Blackstone Inc. (BX), which is the one of the largest owners of commercial real estate in the world. BXMT’s mortgage loan portfolio primarily consists of floating-rate senior loans, which positions it to perform well when interest rates rise, unlike equity REITs.
Like KREF, BXMT pays a very high dividend yield of 10.5% but has displayed a flat share price since the end of the 2008-09 financial crisis. Due to its exposure to the commercial mortgage industry, the REIT suffered an 87% loss in 2008 and a 65% loss the year after. As with all mortgage REITs, investors should consider if they’re comfortable with credit and leverage risk before investing in BXMT.
W.P. Carey Inc. (WPC)
Investors looking for a REIT with holdings in many real estate segments can consider WPC. “WPC is classified as a diversified REIT due to its investments in a variety of property types, rather than focusing on a single type of real estate,” Reddy says. WPC’s portfolio includes industrial warehouses, office buildings, retail outlets and self-storage properties.
“Additionally, W.P. Carey has a global reach, with properties located in North America, Europe and Asia,” Reddy says. This, combined with the multiple underlying property types, can potentially provide greater stability to the REIT’s income and returns. WPC currently pays a dividend yield of 5.2% and has increased its payout every year since its debut in 1998.
Physicians Realty Trust (DOC)
Health care REITs can potentially provide investors with a defensive real estate investment due to the essential nature of the sector. A possible choice is DOC, which holds a portfolio of health care properties such as medical office buildings, outpatient treatment centers, post-acute care hospitals and ambulatory surgery centers, which the REIT leases to physicians and health care companies.
DOC recently paid a dividend of 23 cents per share on Jan. 18 and will report its 2022 fourth-quarter earnings on Feb. 22. This payment marked the REIT’s 38th consecutive quarterly dividend. Currently, DOC yields 5.9%. With dividends reinvested, DOC has outperformed the Vanguard Real Estate ETF (VNQ) since 2014 to Jan. 31, with an 8.3% annualized return versus 8% for VNQ.
National Storage Affiliates Trust (NSA)
Fans of the TV show “Storage Wars” can take part in the industry’s growth by investing in NSA. This REIT focuses on acquiring, owning and operating a portfolio of more than 780 self-storage properties across 35 states, totaling 49.5 million square feet in rentable space. Currently, NSA pays a dividend yield of 5.1%, with its fourth-quarter 2022 payout amounting to 55 cents per share.
“Self-storage REITs benefit from a combination of lower costs, high demand and short-term lease structures, which has enabled the sector to steadily increase income,” Reddy says. “This has helped the industry generate above-average total returns over the years.” NSA returned an annualized 17.7% from 2016 to the present with all dividends reinvested, compared with 5.9% for VNQ.
Easterly Government Properties Inc. (DEA)
As its name suggests, DEA leases office space to the U.S. Drug Enforcement Administration, but that’s not all. This Washington, D.C.-based REIT acquires, develops and manages 94 properties leased to other U.S. federal government agencies as well, which include the FBI and the IRS.
“DEA’s government tenants makes it less vulnerable to falling employment rates and tenant defaults during economic downturns,” Reddy says. Thanks to this resilience, DEA has managed to pay consecutive quarterly dividends since 2015. Currently, the REIT yields 6.6%. Recently in December, DEA completed the sale of 10 properties in its portfolio for $205.3 million.
Highwoods Properties Inc. (HIW)
Investors looking for an office REIT on the private sector side can consider HIW, which owns, develops, acquires, leases and manages properties in what it calls “best business districts,” or BBDs. HIW defines BBDs as “highly energized, infill business communities” that help attract and retain employees, are surrounded by amenities and are situated in large metropolitan areas.
The REIT’s portfolio currently totals 26.9 million square feet across cities like Atlanta, Charlotte, Dallas, Nashville, Orlando and Tampa. Although its share price was hard-hit by the work-from-home trend during the COVID-19 pandemic, the REIT continues to pay a strong dividend yield of 6.7%.
More from U.S. News
Artificial Intelligence Stocks: The 10 Best AI Companies
9 Highest Dividend-Paying Stocks in the S&P 500
7 of the Best High-Dividend ETFs
8 Best High-Yield REITs to Buy originally appeared on usnews.com
Update 02/08/23: This story was published at an earlier date and has been updated with new information.
