Top Dividend REITs to Buy: Real Estate Investment Trusts (REITs) are popular assets for investors looking for yield.
Because these trusts are legally bound to pay out 90 percent of their taxable income to shareholders, they tend to carry much higher dividends than ordinary stocks.
REITs can also be good hedges against inflation and economic downturns due to their income production and connection to physical real estate.
Here are three of the top dividend REITs you can consider adding to your portfolio if you’re looking to begin investing in real estate trusts.
Welltower (NYSE:WELL) is a REIT that focuses on medical real estate, specifically senior care facilities.
While the company was forced to cut its dividend during the pandemic, it still yields a respectable 3.09 percent and pays $2.44 per share annually.
Investors who buy Welltower following the dividend cut could see improved dividend growth as the company recovers and begins to raise its payout again.
In Q2, Welltower grew its funds from operations (FFO) per diluted share by 8.9 percent. Same-store revenue also increased by 11.5 percent.
Welltower also invested $1.6 billion into acquisitions and development. These investments will likely allow the trust to retain its competitive advantage in the senior care industry going forward.
The most obvious long-term argument in favor of Welltower is the growing need for senior housing as the US population ages. Minimal new construction in this niche gives Welltower an effective moat around its business and should enable it to keep occupancy rates high.
Welltower also caters mostly to private-pay customers, giving it a high degree of protection from potential government action to change how Medicare pays for senior living expenses.
Welltower also has a surprisingly high projected upside over the next 12 months. The median price target for WELL is $92.50, a 17.3 percent jump from the current price of $78.86. Analysts are quite bullish on Welltower, with 13 buy ratings, 5 outperform ratings, 4 hold ratings and no underperform or sell ratings.
Realty Income (NYSE:O) is very popular as an income-generating asset due to its monthly dividends.
Many financial institutions hold stock in the trust for similar reasons, and institutional ownership today accounts for over 75 percent of outstanding shares.
This REIT currently yields 4.18 percent, paying $2.97 per share annually. The company has steadily raised its dividend payout annually for the last 28 years, with a 10-year compounded dividend growth rate of 5.56 percent.
In Q2, Realty Income’s FFO rose by 15.9 percent year-over-year. Net income was reported at $0.37 per share. The company also invested $1.7 billion into new properties.
As of the most recent report, Realty Income’s portfolio included 11,427 properties and covered businesses in 72 different industries. For this reason, Realty Income has one of the most diversified real estate portfolios of any REIT.
A trend of rising acquisitions could be a long-term net positive for the REIT, driving both FFO and earnings higher over time. Increased acquisition activity is especially positive in light of Realty Income’s extremely high occupancy rate of 98.9 percent.
With little room to squeeze more revenue from existing properties by increasing occupancy, the company must find new properties in order to continue growing.
One downside associated with Realty Income is a decent possibility that it is currently overvalued. Today’s prices assume considerable revenue and earnings growth over the next 10 years. While ongoing investment in new real estate projects could deliver such growth, it’s far from a guarantee.
Although Realty Income’s dividend history suggests that the payout will continue, investors should be aware of the possibility that the share price could stagnate or even drop in the coming years.
With that said, analysts project that the stock will rise 7 percent this year to a median target price of $76. Combined with the dividend, this upside would give Realty Income returns roughly equal to the long-term average of the S&P 500 this year.
Store Capital (NYSE:STOR) is a triple-net lease provider that buys occupied single-tenant commercial properties and leases them back to their owners.
This allows businesses that sell their properties to Store Capital to remove mortgage debt from their balance sheets and unlock equity in their properties.
Under the triple-net lease model, the tenant pays taxes, maintenance and other associated costs. This unique model makes Store Capital quite efficient and reduces its overhead costs.
Store Capital’s dividend yield is relatively high at 5.53 percent, resulting in an annual payment of $1.54 per share. The trust doesn’t have Realty Income’s dividend history, but it has been steadily raising its payout for the last seven years. Over the last five years, the dividend has grown at a compounded annual rate of 5.83 percent.
Store Capital’s Q2 report detailed revenue of $223.8 million, a 17 percent increase over the previous year. Net income per share rose from $0.23 in Q2 2021 to $0.32. Store Capital also invested nearly $400 million into new projects, adding 62 properties to its portfolio. For the first half of the year, Store Capital acquired a total of 173 new locations.
Acquisitions made in Q1 helped drive the revenue growth Store Capital saw in Q2. With the trust continuing to add new properties at a fairly rapid rate, investors will likely see even better performance later this year and into 2023.
While not as high as Welltower’s, Store Capital could have decent upside potential over the coming 12 months. The median analyst target price for the stock is $31, up 11.4 percent from the most recent price of $27.84.
Store Capital is also priced reasonably for a REIT. The stock currently has a P/E ratio of 23.4. Welltower and Realty Income, by contrast, are priced at 82.1 and 71.7 times their earnings, respectively. Given its high dividend, growth rate and prospects for the future, Store Capital could be a good value in the REIT world.
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