There are plenty of benefits to having an allocation to real estate in your portfolio. From income generation to having an asset class that helps fight inflation, every investor should have some allocation to real estate. For most of us that aren’t high net worth investors that means either owning one or two rental properties or buying real estate investment trusts (REITs).
REITs make it real estate ownership easy and without many of the hassles that come with owning a rental property. With the security type, investors can gain access to a variety of property types and locations with one ticker. And thanks to their tax structure, REITs hand back much of their cash flows as dividends. However, there is one way that being a direct property owner does win big over REITs. And that’s those sweet monthly rent checks from tenants.
But REIT investors may not need to fret.
There are a handful of top-notch and high yielding REITs that do reward their shareholders every month. And with these firms, investors big and small can finally gain all the benefits of a landlord without all the hassles.
With that, here are three monthly paying REITs to buy today.
STAG Industrial (STAG)
Dividend Yield: 4.81%
Talk about being in the right place at the right time. Thanks to rising e-commerce/omnichannel growth and a strengthening economy, STAG Industrial (NYSE:STAG) has been a winner since its IPO back 2011- offering plenty of dividend growth and capital appreciation. The key is that the firm focuses on warehouse and light industrial properties. These property types have been big winners in the shift towards reshoring and online consumerism. Rising demand and rents have simply translated into gains for STAG.
But it’s the kind of warehouses that STAG owns that sets it apart from rivals like Prologis (NYSE:PLD).
STAG focuses on single and smaller warehouse properties. The benefit to the REIT is that often these warehouses can be bought on the cheap and below replacement costs. Secondly, tenant pricing power and quality for many of these small- and mid-size firms allows STAG to charge higher rents than other warehouse REITs. Since 2007, rents for Non-Super Primary markets — the fancy way of saying STAG’s niche — have grown by nearly 16%. This contrasts to just 9% growth for Super Primary ones. In the end, the combination of these two factors has helped support STAG’s FFO growth and dividends.
To reduce risk, STAG has grown large. Today, the REIT owns more than 409 properties and no tenant makes up more than 2.1% of its warehouses. A strong balance sheet doesn’t hurt either.
The best part is STAG is willing to share the wealth via a growing monthly dividend. All in all, STAG could be one fo the best ways for investors to become a landlord via REITs.
Apple Hospitality (APLE)
Dividend Yield: 7.31%
When it comes to REITs, the lodging industry is often overlooked by investors. That’s because, unlike something like an apartment building or medical office, hotel demand is very economically sensitive. So, historically, the lodging REITs have been a more volatile subsector of the market. But there are ways to reduce that risk and score a monthly dividend. Case in point, Apple Hospitality (NYSE:APLE).
APLE owns 234 hotels across 38 states. Like previously mentioned STAG, the win for Apple comes down to its niche. The hotelier focuses on so-called select-service or room’s focused hotel properties. These fall within middle ground between budget conscience travelers and upper-scale consumers. Moreover, select-service hotels tend to be frequented by business travelers who aren’t very price-sensitive given then tend to use expense accounts or receive reimbursements for travel. Top brands in APLE’s portfolio include Hilton’s (NYSE:HLT) Embassy Suites and Marriott’s (NASDAQ:MAR) Courtyard, Residence Inn, and TownePlace Suites concepts.
What’s great about the middle ground is that operating margins tend to be better than even upscale hotels. There’s less demand from clients, but the rooms are still nice and command a premium over budget hotels. As a result, Apple has some of the best operating margins in the lodging sector while still maintaining high revenues-per-available-room (RevPAR) numbers.
And it’s used those margins to reduce debt, expand its portfolio of hotels and pay a steady 7.31% monthly dividend.
LTC Properties Inc (LTC)
Dividend Yield: 4.50%
Rising healthcare spending and the continued “Graying of America” could easily be two of the biggest megatrends facing investors these days. Better and greater access to healthcare solutions is only increasing longevity and our lifespans. That’s a major problem considering the specialized facilities needed to care for the elderly. Luckily, LTC Properties (NYSE:LTC) is up to the task.
The LTC stands for Long-Term Care and REIT invests in senior housing and assisted living facilities. This is a particularly sweet spot in the medical property market as demand for these facilities continues to grow as longevity rises and more seniors need aid. Even better is that private-pay facilities can generate very high margins from tenants. Currently, LTC has about 200 properties under its umbrella. However, it continues to add deals that are instantly accreditive to its bottom line.
The cool thing about LTC is that it is considered a hybrid REIT. That is, it owns both physical properties as well as invests in mortgages/provides loans to other developers. This creates a varied income stream for the REIT that helps pads its bottom line. Also helping is that fact that LTC doesn’t operate the facilities, it just simply collects a rent check. This eliminates many of the risks associated with the healthcare sector.
What it all really does is make LTC an earnings machine. Last quarter, FFO did rise slightly despite plenty of building/construction activity for the REIT. Meanwhile, LTC has managed to raise its monthly dividend 32% since 2010. Currently, LTC yields 4.5%.
Disclosure: At the time of writing, Aaron Levitt did not have a position in any stock mentioned.