High Yield Dividend REITs To Hold Forever: REITs are often considered the perfect dividend stock as they’re legally obliged to pay out 90% of their profits in income distributions.
And while they aren’t always the biggest gainers when it comes to capital returns, they’re certainly one of the best choices for a fire-and-forget investment vehicle, promising long-term cash accumulation via their regular dividend payout.
With an increasing number of investors seeing the value of income stocks in an ever more uncertain world, here are 3 high-yield dividend REITs to buy and hold forever.
Easterly Government Properties
Dividend stocks don’t come much more safe than Easterly Government Properties (NYSE:DEA). The company is a real estate investment trust that focuses on acquiring, developing, and leasing Class A commercial properties to the US Government.
As such, the vast majority of its cash flows are generated by one of the most reliable institutions on earth, and the dependability of its income-paying potential is second to none.
But that’s not all.
DEA’s dividend doesn’t compromise dependability for yield, and the stock is currently generating annual returns of 5.38% for its shareholders too.
At the latest reckoning, Easterly Government owned 89 operating properties, with an occupancy rate of 99%.
One of the interesting contractual perks of dealing with the U.S. General Services Administration (GSA) is that the leasing agreement affords Easterly a valuable operating expense provision, protecting the company against net operating income losses should there be an upturn in inflationary pressures.
Another major plus-point of having the US Government as a client is that the typical tenancy length is fairly long, normally anywhere between ten and twenty years for an initial lease.
This also helps to contribute to the predictability of the company’s cash flows, not least because the properties often serve an important role in the work of the GSA.
The company doesn’t appear to be particularly expensive compared to its historic level, with a price-to-FFO ratio of 14x its current value.
In fact, with the DEA board approving a stock repurchase plan of up to approximately 4.5 million shares in total – or 5% of the firm’s outstanding shares – an investment now in Easterly Government Properties could have both income and price appreciation benefits further down the line.
The pandemic presented some difficult headwinds for STORE Capital in 2020, as the company’s predominantly service-based tenants were unable to continue making rent payments in the face of state and nationwide lock-downs.
However, the firm enjoyed a solid rebound when the economy did eventually reopen in 2021, with the business seeing an earnings bonanza off of the back of increased collection rates, and the influx of earlier deferred rent commitments from the previous year.
In fact, STOR’s AFFO-per-share metric spiked 12% year-on-year, coming in even 3% higher than it did in 2019.
Perhaps spooked by its experiences in 2020, STORE spent much of 2021 investing an additional $1.5 billion into a raft of new acquisitions. In fact, that impetus also spilled over into 2022, as the firm vaunts its massive pipeline of $13.2 billion of real estate assets.
Indeed, in line with its policy of developing a highly diversified portfolio of properties, the company ensured it had all industrial bases covered, with tenants representing businesses such as health clubs, restaurants, auto maintenance and specialty medicine.
Despite the specter of rising inflation and higher interest rates, STORE Capital’s CEO, Mary Fedewa, believes that the firm’s unique business model can weather any issues that may come its way.
Speaking on the company’s fourth quarter conference call, Fedewa cited the fact that its triple net lease REITs rarely incur the same kind of property-related operating expenses that other REITs have to deal with.
Moreover, STOR’s “contractual rent escalations” also provide an in-built hedge, enabling it to cope with any expansionary pressures that could develop.
On the share price front, STOR has had a tough year so far. Its stock is down more than 22% in 2022, somewhat worse than the Vanguard Real Estate ETF’s loss of 16%.
However, this sell-off has given investors an opportunity to buy the company when its dividend is currently running at 5.8%, with a very healthy last twelve months payout ratio of 69%.
Medical Properties Trust
Medical Properties has been in the news for all the wrong reasons lately, as some of the nation’s biggest names in publishing ran attack-dog stories against the Birmingham, Alabama-headquartered business.
Oddly enough, this should faze long-term investors in the company not one bit. In fact, the subsequent share price drop after the fall-out of recent weeks should be seen as a golden opportunity to buy the stock cheap, getting a slice of a dividend that’s currently yielding 6.28% per share.
The company is a specialist investor in both casinos and hospitals – two property categories that on the face of it don’t appear to have much in common.
However, the idiosyncratic choice to focus on these two types of buildings and businesses has actually worked out well for the REIT, especially in the particular inflationary environment it finds itself in right now.
Indeed, MPW’s unique lease agreements are associated with inflation ladders, which means that the firm can raise rents as inflation goes up. The company also enjoys an almost 100% occupancy rate, as well as a roughly 3% normalized rent coverage and a very high likelihood of lease renewal.
Lease expiration in the proceeding five years is low, at about 1 to 2% each year on average. Other advantages tied to the hospital/casino space include a high barrier-to-entry for competitors, and low competition for investments.
In fact, Medical Properties Trust is the second largest non-governmental hospital owner on the planet, with assets worth over $20 billion, and interests on multiple continents, including north America, Europe and Australia.
The mission-critical nature of the company’s property holdings ensures that there’s little risk of rents not being paid, and this in turn has led to the business being able to increase its AFFO every year since 2012.
Most importantly for investors, however, is the 356% total shareholder return that the company has delivered in the last ten years, as well as the $8.3 billion in shareholder value it created too. And with an AFFO payout ratio of less than 80%, its dividend looks safe for many quarters to come.
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