The popularity of real estate investment trusts (REITs) hinges heavily on dividends. Equity (meaning non-mortgage) REITs pay on average of 4.1% in dividends, vs. 1.8% for the S&P 500. Tax rules tend to boost dividend payments for these real estate stocks. If REITs agree to pay out at least 90% of their income in dividends, certain types of income receive an exemption from federal income tax. While such a rule can lead to constant fluctuation in payout amounts, investors often willingly accept this condition in exchange for the higher dividend.
A handful will also pay a dividend that places the yield close to or sometimes above 10%. Stockholders must exercise caution with some of these real estate stocks, as the high payout could mask problems with the stock. For example, CBL & Associates Properties (NYSE:CBL) may tempt some investors with its 14.3% dividend. However, investors will likely find themselves less anxious to buy when they see that troubled retailers such as Sears (NASDAQ:SHLD) and J C Penney Company (NYSE:JCP) anchor 60% of their properties.
While investors need to understand the stocks and exercise caution, they can still find REITs that pay a safe, sustainable, return at or near double-digit dividend yields.
Real Estate Stocks Paying Monster Dividends: Colony Credit Real Estate (CLNC)
Dividend Yield: 8.3%
Colony Credit Real Estate (NYSE:CLNC) acts as a diversified REIT. CLNC owns properties in the industrial, office and hotel sectors. It also invests in commercial real estate debt. The firm also provides investment management services and offers financial products to individuals as well as institutions.
Though it boasts 26 years of experience and $43 billion in assets under management, it stands as one of the newer real estate stocks. The company only began trading as a REIT in February.
However, the little history available on the company appears promising. Revenues have risen by over 20% every year since at least 2015. Earnings have increased at about the same rate. Analysts expect CLNC stock to earn $1.77 per share this year. They also predict a net income of $2.08 per share in 2019.
So far, the company has paid 14.5 cents per share per month in dividends. That comes to $1.74 per share on an annual basis. Moreover, if the $2.08 per share profit for 2019 holds, shareholders can expect at least $1.87 per share next year. Hence, CLNC offers both a dividend exceeding 8% and the benefit of receiving dividends on a monthly basis. Few REITs offer one or the other, let alone both.
Despite the company’s long history, the stock’s short history as a publicly traded REIT might make some investors nervous. However, the financials that are available offer promise. For investors willing to take a chance on a short trading history, they can enjoy monthly returns, a dividend set to increase and, perhaps, a stock price set to increase along with the dividend.
Real Estate Stocks Paying Monster Dividends: Government Properties Income Trust (GOV)
Dividend Yield: 10.7%
As the name implies, Government Properties Income Trust (NASDAQ:GOV) acquires, manages, and leases office space to government entities. What differentiates GOV from most real estate stocks is that most of their real estate is leased to the federal government. Still, GOV also counts many state governments, municipalities, and international organizations among its clients. Both the growth of government and the expansion of agencies have sustained a continued growth path for longer than anyone can remember. Hence, this REIT should remain among the safer investments.
Investors should buy this stock assuming that most (and possibly all) the income derived from GOV stock will come from the dividend. The stock trades a little bit more than 20% lower than its IPO levels of 2009. Still, it could be well-positioned to bounce back. The stock is well off its 52-week low of $11.87 per share.
At nearly $16 per share, it remains about 35% below the near-term high achieved in 2016. That places its forward price-to-earnings (P/E) ratio at just under 8. Although no profit growth is forecast through 2020, both the P/E and price-to-sales (P/S) ratio trade well below five-year averages.
Moreover, the reduction in price has brought the dividend yield near double-digit levels. The REIT has held its annualized dividend at $1.72 per share since 2013. At current prices, that takes the dividend yield to about 10.9%. With a stable income source, a double-digit yield and the possibility of stock price appreciation, long-term income investors should look at GOV stock.
Real Estate Stocks Paying Monster Dividends: Select Income REIT (SIR)
Dividend Yield: 9.1%
Select Income REIT (NASDAQ:SIR) specializes in both office and industrial properties leased to single tenants. Buildings as diverse as corporate headquarters and leasable land parcels make up SIR’s portfolio of properties. SIR also owns 69.2% of the shares in Industrial Logistics Properties Trust (NASDAQ:ILPT). ILPT makes up its industrial properties and much of its office property.
Like many real estate stocks, this stock has seen little stock price appreciation. SIR stock currently trades around $22.50 per share, less than $1 higher than its $21.75 per share IPO price in 2012. In six years of trading, the stock has never risen more than 40% above this IPO price. It has also never fallen more than 20% below its original price.
Hence, like most REITs, dividends will constitute the majority of profit earned in SIR stock. The dividend has seen a steady increase since the 2012 IPO. The annual dividend started out at 91 cents per share in 2012. It has seen a sustained move higher since and last increasedto $2.04 per share. The quarterly dividend has remained at that 51 cents per share per quarter for two years. If that trend continues, 2018 will become the first year in its history not to see a dividend increase.
However, even if investors do not see a higher dividend, a yield of 9.1% will still provide income investors with a stable amount of income at a high return.
Real Estate Stocks Paying Monster Dividends: Uniti Group (UNIT)
Dividend Yield: 11.8%
Uniti Group (NASDAQ:UNIT) focuses on a different type of real estate than most real estate stocks. Specifically, the REIT focuses on communications infrastructure. Uniti’s portfolio consists of fiber networks, towers and other infrastructure related to telecom. The company operates both in the United States and Latin America.
The customer base for such REITs usually consists of the country’s largest telecom providers. In UNIT’s case, their primary customer has been the struggling firm Windstream Holdings (NASDAQ:WIN), from whom UNIT stock spun off. At its peak, WIN accounted for 65% of Uniti’s revenue. As WIN heads toward a possible bankruptcy, UNIT has moved away from the troubled telecom company.
Though the relationship with WIN exposes UNIT investors to possible perils, one developing phenomenon could make it worth the risk — 5G. The major telecom companies will each spend tens of billions of dollars over the next few years to build 5G telecom networks. 5G will increase speeds exponentially. Consequently, this will increase the demand for towers, small cells and fiber networks. This need for more infrastructure will be a boon to telecom REITs.
The current annual dividend stands at $2.40 per share, which brings the yield to about 11.8%. Analysts predict earnings per share (EPS) of $2.51 for 2018. Hence, the dividend should sustain itself despite the issues with Windstream. Stock appreciation also remains a possibility. At just above $20 per share, it trades approximately in the middle of its 52-week range. UNIT stock traded as high as $32.73 per share in 2016.
It could reach that high and beyond with the increasing demand for telecom real estate. Increased demand would also increase profits, creating a virtuous cycle that also takes the dividend higher. For those that can stomach the risks associated with Windstream, UNIT stock could profit investors on both income and growth.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.