Investors looking for income can’t expect much from the average dividend-paying stock — the S&P 500‘s current dividend yield is just 1.3%. There are stocks whose yield is much higher, 4% or more, but the higher you go, the less stable that yield can be — sometimes it’s artificially high because the stock has plummeted, and sometimes it’s simply a level of cash distributions that the company can’t afford. The trick is to find companies that are steadily growing their earnings or cash flow — not only can they sustain generous payouts, but they can raise them regularly.
Real estate investment trusts (REITs) are a nice option, since they must pay out at least 90% of their taxable income as dividends.Let’s look at some attractive REITs that provide high yields.
Medical Properties Trust
Medical Properties Trust (NYSE:MPW) focuses on renting healthcare facilities. Roughly three-quarters of its properties are general acute-care hospitals, which generate more than 80% of the company’s revenue. The rest of its assets include inpatient rehab hospitals, behavioral health facilities, long-term acute-care hospitals, and stand-alone emergency rooms. Out of its 425 properties, 52% were located in the U.S., with 45% in Europe. The remaining handful of locations are in Australia and South America.
These tenants have stable demand, no matter the state of the economy. The results bear this out. While many companies faced challenges as the coronavirus pandemic spread around the world last year, Medical Properties Trust did just fine. Last year, it collected 98% of the rent due, and it has agreements for the tenants to pay the remaining amount. And these reliable tenants are locked into long-term leases. Most of the company’s properties have leases that expire after 2030. These represent 87% of its properties and the same portion of the company’s rent.
Last year, Medical Properties Trust’s revenue rose by about 46% to $1.2 billion, and it had a 42% increase in adjusted funds from operations (AFFO — a key figure for REITs because it measures cash earnings without the accounting distortions associated with real estate ownership). The company followed this up with a strong first quarter in 2021. Revenue grew by over 23% to $362.8 million, and AFFO was nearly 25% higher.
Medical Properties Trust has modestly increased dividends for several years, including raising April’s quarterly payment by a penny to $0.28. At Tuesday morning’s prices, the stock’s dividend yield is a healthy 5.4%.
W.P. Carey (NYSE:WPC) diversifies its real estate holdings by property type and geography. The company owns over 1,200 industrial, warehouse, office, retail, and self-storage properties. Industrial tenants make up about 25% of rental payments, with warehouse and office properties comprising about 22% and 23%, respectively. Retail makes up 18%, and the balance is from retail and other property types. While over 60% of its rent comes from U.S. properties, 39% is derived internationally, with the vast majority coming from Europe.
This approach proved beneficial during last year’s difficult days. Occupancy has historically hovered above 98%, dipping to 98.5% last year from 2019’s 98.8%. While revenue fell by 2% to $1.2 billion, this was due to a drop in its investment management revenue. Management is de-emphasizing this business to focus on its real estate operations.
W.P. Carey’s first-quarter revenue growth was positive, increasing to $311.2 million, up 0.7%. AFFO was $216.5 million, flat versus a year ago. On a per-share basis, the figure was $1.22. However, management grew more optimistic about this year’s prospects. It now expects AFFO per share of $4.87 to $4.97, up from its previous $4.79 to $4.93 expectation. Last year’s figure was $4.74, so this is nice growth.
This REIT also doesn’t disappoint on dividends, raising payments annually since becoming a public company in 1998. Its yield as of Tuesday morning is 5.3%.
While high-yielding stocks sometimes mean a dividend cut is forthcoming because business prospects have worsened, that’s not the case with these two companies. These REITs have solid property portfolios that result in robust earnings and strong cash flow. That makes these ideal choices for investors seeking a high yield.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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