2 Ultra-High-Yield REIT Stocks to Buy and 1 to Avoid

CEO Khai Intela
If you're on the lookout for an ultra-high yield on Wall Street, the real estate investment trust (REIT) sector is a great place to start. These companies are built to pass on income to shareholders,...

If you're on the lookout for an ultra-high yield on Wall Street, the real estate investment trust (REIT) sector is a great place to start. These companies are built to pass on income to shareholders, making them an attractive option for both conservative and aggressive investors. In this article, we'll explore two REIT stocks that are worth considering for their high yields, as well as one that you may want to avoid.

Realty Income: Boring but Reliable

Realty Income is a REIT that has increased its dividend annually for an impressive 29 consecutive years. While its dividend growth has been modest at around 4.3% per year, the stock has proven to be a highly reliable dividend option. Additionally, the company boasts an investment-grade-rated balance sheet, further adding to its appeal.

What sets Realty Income apart is its business model. It invests in single tenant net lease properties, which means that its tenants are responsible for most property-level costs. The company owns over 15,000 properties, primarily in the retail sector, with some industrial and other assets in the mix. This diversified portfolio helps to mitigate risk, while regular rent bumps and acquisitions contribute to slow and steady growth over time. With a 5.8% dividend yield, Realty Income is an attractive option for even the most conservative investors.

EPR Properties: Navigating a Turnaround Effortlessly

If you're willing to take on a bit more risk for a higher yield, EPR Properties could be the right choice for you. Like Realty Income, EPR Properties utilizes the net lease approach, but with a more focused portfolio. With approximately 350 properties, the majority of which are experiential properties such as movie theaters, amusement parks, and ski resorts, the REIT offers an exciting investment opportunity.

Admittedly, EPR Properties faced challenges during the early days of the COVID-19 pandemic, resulting in a temporary suspension of its dividend. However, the company has since resumed dividend payments and its adjusted funds from operations (FFO) payout ratio in the third quarter of 2023 was a modest 55%. This indicates that EPR has ample room to navigate the ongoing headwinds facing the movie theater business. With a tempting 7.7% dividend yield, EPR Properties is worth considering if you can handle a little adversity.

Annaly Capital: A Risky Choice

While Annaly Capital may offer a massive dividend yield of over 13%, its risk/reward profile may not be worth it for most investors. The mortgage REIT has a history of multiple dividend cuts over the past decade, with each cut negatively impacting the stock price. This has left investors with less income and capital, making it a less desirable option for those looking to maximize portfolio income.

It's important to note that Annaly Capital isn't designed for small investors relying on portfolio-generated income. It caters more to large institutional investors who prioritize total return through dividend reinvestment. Mortgage REITs, including Annaly, are complex entities that can be influenced by interest-rate fluctuations and housing market dynamics, among other factors. While Annaly isn't inherently a bad company, it may not align with the income goals of most investors.

Summary

In a market where the average yield is only around 1.4%, ultra-high-yield REIT stocks present an enticing opportunity. Both Realty Income and EPR Properties offer compelling yields, albeit with differing risk profiles. While Realty Income provides a reliable and steady option with a 5.8% yield, EPR Properties navigates a turnaround effort with an impressive 7.7% yield. On the other hand, Annaly Capital's massive yield, despite its appeal, may not be the best choice for most investors. As always, it's crucial to carefully consider your risk tolerance and investment goals before making any decisions in the REIT sector.

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