In the quest for higher income potential, the U.S. market’s average dividend yield often falls short for some investors’ needs.
For example, the iShares Core S&P Total U.S. Stock Market ETF (ticker: ITOT) only offers a modest 30-day SEC yield of 1.4%. In light of this, REITs, or real estate investment trusts, are often sought after as an alternative for their higher yield potential.
“REITs are companies that own, operate or finance income-generating real estate properties,” says Rohan Reddy, director of research at Global X ETFs, which operates the Global X SuperDividend REIT ETF (SRET). “They are required to distribute at least 90% of their taxable income as dividends to shareholders, which makes them a popular choice for investors seeking regular income.”
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By owning REITs, investors can obtain real estate exposure within a regular brokerage account, benefiting from consistent income without the need for a down payment, mortgage or property taxes.
“REITs are currently paying a dividend that is nearly three times the dividend on the S&P 500 — plus the potential for capital appreciation,” says Abby McCarthy, senior vice president of investment affairs at Nareit.
However, even within the REIT sector, the average yields may still leave some investors looking for more. Take, for instance, the iShares Core U.S. REIT ETF (USRT), which pays a yield of around 3.2% — better than many stock investments, but still potentially insufficient for those seeking higher income streams.
The solution for those seeking higher yields may be to dig deeper into the REIT sector, targeting the highest-yielding REITs specifically. While there’s no hard and fast rule, a yield higher than the sector average is often considered a viable target for income-seeking investors.
Investing in high-yield REITs comes with its own set of benefits and risks. The primary benefit is, of course, the potential for higher income. This can be particularly appealing in a low-interest-rate environment or for investors who rely on their investment portfolio for regular income.
However, it’s crucial to understand that higher yields often come with greater risks. A high yield can sometimes correlate to a depressed share price, which might be a result of unfavorable fundamentals within the REIT or broader market challenges specific to the real estate sector it operates in.
“Investors need to be very careful with high-yield REITs,” says Sam Adams, CEO and co-founder of Vert Asset Management. “Some could be considered high yield simply because their stock price has fallen so much that the dividend yield looks high.”
Thus, while high-yield REITs can offer attractive income potential, they may also expose investors to increased volatility and risk, making thorough research and a careful assessment of each REIT’s financial health and market position essential.
Here are eight high-yield REITs investors can consider in 2024, according to experts:
| REIT | Forward dividend yield |
| Omega Healthcare Investors Inc. (OHI) | 9% |
| Healthpeak Properties Inc. (PEAK) | 6.2% |
| EPR Properties (EPR) | 7.3% |
| National Storage Affiliates Trust (NSA) | 5.9% |
| Blackstone Mortgage Trust Inc. (BXMT) | 12.1% |
| KKR Real Estate Finance Trust Inc. (KREF) | 13.5% |
| Easterly Government Properties Inc. (DEA) | 8.3% |
| Realty Income Corp. (O) | 5.5% |
Omega Healthcare Investors Inc. (OHI)
“OHI’s long-term, triple-net lease structures combined with fixed rates on 99% of its outstanding debt have helped shield it from the forces impacting the real estate sector,” Reddy says. “Built-in annual rent escalators on its agreements also help outstanding leases keep pace with inflation, and the weighted average length of its outstanding lease terms at 9.4 years reduces the likelihood of short-term turnover.”
OHI’s last dividend paid amounted to $2.68 per share, which, based on its current share price, projects a 9% yield. The company is scheduled to release its fourth-quarter earnings results for 2023 on Feb. 7 after the market closes. Last quarter, the company reported a 1.1% year-over-year revenue increase along with earnings per share, or EPS, of $0.71, up from $0.43 the previous year.
Healthpeak Properties Inc. (PEAK)
Many health care REITs are paying high yields after still grappling with the lasting headwinds from the COVID-19 pandemic, which disproportionately impacted those operating retirement home properties. A great example is PEAK, which is currently paying a yield of 6.2% and is down about 25% over the past year as of Jan. 23. However, experts believe this particular REIT sector has favorable long-term tailwinds.
“Long-term care facilities comprise a historically stable sector of the real estate market, which has held up well in the backdrop of rising rates and market volatility,” Reddy says. “This can be attributed to tight supply buoyed by a delayed construction pipeline, increased investor interest in alternative asset classes and strong secular tailwinds from an aging population.”
EPR Properties (EPR)
“EPR benefited from strong consumer spending tailwinds in the wake of the pandemic and saw its revenue exceed pre-pandemic levels in early 2023,” Reddy says. “It also capitalized on shifting preferences among younger consumers for ‘experiential’ spending, as travel spending drove growth among discretionary sectors.” The REIT’s most recent distribution of $3.30 implies a 7.3% yield.
One of the main factors that distinguishes EPR from some REITs is its monthly distribution frequency, as opposed to quarterly. Income from EPR is generated from a host of high-profile entertainment industry tenants, notably Six Flags Entertainment Corp. (SIX). Investors interested in this REIT should mark Feb. 28 on their calendars for the company’s upcoming fourth-quarter 2023 earnings call.
National Storage Affiliates Trust (NSA)
A popular type of industrial REIT deals with self-storage properties. Under this business model, the REIT owns and operates facilities that charge customers for storage space. These properties typically require less maintenance and fewer on-site staff than residential or commercial buildings, which can lead to higher profit margins and predictable revenue streams.
Case in point, NSA maintains a strong trailing-12-month operating margin of 39.4%, along with a decent profit margin of 13.8%. For the third quarter of 2023, the REIT reported a 7.2% increase in net income compared to the previous year’s quarter and repurchased $213 million worth of shares. The last distribution of $2.23 paid implies a 5.9% yield at the current share price.
[Read: Best Places to Invest In Real Estate in 2024]
Blackstone Mortgage Trust Inc. (BXMT)
“Mortgage REITs came under pressure due to the exposure of their underlying portfolios to rising rates,” Reddy says. “However, BXMT’s loan portfolio remains resilient, reflecting the strong credit quality of its underlying holdings.” Instead of owning physical properties, this unique REIT invests in a portfolio of mortgage-backed securities with leverage, which provides a high 12.1% yield.
BXMT’s current portfolio of senior loans is valued at $22.1 billion, comprising 185 loans with a 64% weighted average origination loan-to-value, or LTV, ratio. This means that on average, the original loan amount constituted 64% of the property’s appraised value at the time it was made. For investors, it suggests that BXMT’s loan portfolio is fairly resilient against potential declines in property values.
KKR Real Estate Finance Trust Inc. (KREF)
“Going forward, mortgage REITs may continue to face challenges in the face of rate uncertainty, but they do offer an interesting opportunity should rates begin to stabilize,” Reddy says. With the Federal Reserve having held rates steady since July, some investors are banking on an eventual pivot to lower rates in 2024. Should this occur, mortgage REITs like KREF could see promising upside potential.
KREF’s portfolio consists of 99% in floating-rate senior loans, which, thanks to the high interest rate environment, have remained fairly resilient. In terms of exposure, 41% of the REIT’s mortgage portfolio is backed by multifamily residential properties, but it also has substantial commercial office exposure at 25%. Currently, investors can expect a high 13.5% distribution yield.
Easterly Government Properties Inc. (DEA)
Investors looking for a high-yield REIT with a durable, essential tenant can consider DEA. This REIT primarily owns and leases Class A commercial property to 40 government tenants such as the U.S. Department of Veterans Affairs, the FBI and the Drug Enforcement Administration. DEA’s current portfolio includes 90 total properties totaling 8.9 million square feet.
The company’s financial position has improved recently, as evidenced by Kroll Bond Rating Agency issuing it a BBB, or investment grade, credit rating. Despite shares being down about 13% over the past year, DEA continues to produce positive cash flow and a decent profit margin of 10.5%. Investors who buy this beaten-down REIT right now can expect a high distribution yield of 8.3%.
Realty Income Corp. (O)
While not the highest-paying REIT on this list with a 5.5% yield, Realty Income stands out for its exceptional and reliable dividend-paying track record. A member of the S&P 500 Index and the S&P 500 Dividend Aristocrats Index, this diversified REIT has paid 643 consecutive monthly dividends since its listing in 1994, with a total of 105 quarterly dividend increases.
Investors favoring more stability may prefer Realty Income given its large-cap status and lower volatility, sporting a market capitalization of $40 billion and a beta of 0.6. From 1995 to Dec. 31, 2023, Realty Income has returned an annualized 13.6%. Given that the stock was down two years in a row in 2022 and 2023, 2024 could be an opportunity to acquire this REIT at a discount.
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8 Best High-Yield REITs to Buy originally appeared on usnews.com
Update 01/24/24: This story was published at an earlier date and has been updated with new information.
