How You Can Earn Yields of Up to 13.8% Every Year in Retirement
The Secret to an Oversized Passive Income Stream
Retirement investors haven’t had the best of luck in recent years. Interest rates were kept artificially low by the U.S. Federal Reserve, meaning fixed-income products paid next to nothing. And due to the sheer amount of cash being pumped into the stock market, valuations are now bloated, which also causes companies’ dividend yields to drop.
In other words, if you put your money in a savings account or you buy shares of the most popular dividend-paying companies, your income stream won’t be that great. This puts on quite a bit of pressure for those of us who are trying to save for retirement.
For instance, the average dividend yield of all S&P 500 companies stands at just 1.78% at the moment. Simple calculation shows that, for those who want to earn a dividend income of $10,000 a year from a typical S&P 500 portfolio, they’ll need a whopping $561,798 investment to start with.
That’s quite a lot of money just to earn $10,000 a year. And the main reason was the subdued average dividend yield. The good news is, for those who are willing to look into the not-so-hot areas of the stock market, there are still solid dividend-paying companies that are trading at reasonable prices. Moreover, because their stock prices didn’t shoot through the roof, they can still offer some pretty substantial yields.
With these stocks, investors can construct a portfolio that yields much higher than the market average. And that would make it a lot easier for those who want to earn a passive income from dividends in retirement. Going back to the $10,000-a-year dividend income target, if an investor has a portfolio that yields five percent, they would only need to start with $200,000 of initial investment, which is a much easier goal to achieve, compared to the $561,798 we calculated earlier.
So where can you find companies paying five percent or more?
Well, here at Income Investors, we have covered dividend stocks from virtually every industry. Today, I would like to focus on a sector that’s of particular interest to retirement investors: real estate.
Being a landlord is one of the oldest ways to earn a passive income. Because tenants have to pay rent on a regular basis (usually every month), landlords can generate a steady stream of rental income from their properties.
The thing is, though, not everyone has the financial freedom to build an ideal real estate portfolio. Some people can afford to a have a few rental apartment units, but many other types of real estate assets—such as office buildings and retail shopping centers—are usually out of reach for most people. Add in the hassles associated with being a landlord (chasing late payments, fixing leaky faucets, etc.), and you’ll see that earning an income from your rental properties may not be as easy as it seems.
Fortunately, more than five decades ago, President Dwight Eisenhower signed into law something that has since been providing tremendous help for small real estate investors, the REIT Act contained in the Cigar Excise Tax Extension of 1960. This law led to the creation of real estate investment trusts (REITs), which gave all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate.
To qualify as a REIT, a company must earn at least 75% of its gross income from rents, interest from mortgages, or other real estate investments. The company must also distribute at least 90% of its taxable income to shareholders every year in the form of dividends.
Leasing out properties is not exactly an exciting business, which is one of the reasons why REITs haven’t been the hottest commodities in the stock market. But because of their distribution requirement, real estate companies have always been some of the most generous dividend payers.
Below I have listed three high-yield REITs that are worth considering for retirement investors.
Three Retirement Stocks Yielding Up To 13.8%
|Company Name||Stock Exchange||Ticker Symbol||Dividend Yield|
|Realty Income Corp||NYSE||O||5.12%|
|Omega Healthcare Investors Inc||NYSE||OHI||9.56%|
|Uniti Group Inc||NASDAQ||UNIT||13.82%|
Realty Income Corp
In my opinion, no discussion of real estate stocks would be complete without mentioning Realty Income Corp (NYSE:O). The company maintains a diversified real estate portfolio over 5,100 commercial properties in 49 states and Puerto Rico. Those properties are leased to 249 commercial tenants across 47 different industries.
While most dividend stocks distribute on a quarterly basis, Realty Income pays its shareholders every month. As a matter of fact, since the company’s founding in 1969, it has made 572 consecutive monthly dividend payments. (Source: “Monthly Dividend Commitment,” Realty Income Corp, last accessed March 16, 2018.)
With a monthly dividend rate of $0.2195 per share, O stock offers an annual yield of 5.12%.
Omega Healthcare Investors Inc
As the name suggests, Omega Healthcare Investors Inc (NYSE:OHI) invests in healthcare real estate. In particular, the company specializes in financing the sale and leaseback, construction, and renovation of skilled nursing facilities, which currently represents 83% of its portfolio. The remaining 17% of Omega’s portfolio consists of investments in senior housing facilities.
OHI stock pays growing dividends. The company recently raised its quarterly dividend rate to $0.66 per share, marking its 22nd consecutive quarterly dividend increase. Trading at $27.61 apiece, Omega Healthcare Investors stock has an annual dividend yield of 9.56%. (Source: “Omega Announces Twenty Second Consecutive Increase in Its Quarterly Common Stock Dividend,” Omega Healthcare Investors Inc, January 16, 2018.)
Going forward, this healthcare REIT is well positioned to capitalize on a major demographic trend: population aging. As more baby boomers enter their golden years, the demand for Omega’s senior housing properties and skilled nursing facilities could see a significant increase.
Uniti Group Inc
Uniti Group Inc (NASDAQ:UNIT) is a unique real estate stock because, other than buildings, the company’s portfolio consists of 4.8 million strand miles of fiber and 468 wireless towers.
In other words, Uniti invests in communications infrastructure. The REIT helps communications companies—such as wireless carriers—strengthen and expand their networks by leasing out its infrastructure assets.
The No. 1 reason to consider this REIT is its enormous yield. Uniti currently pays quarter dividends of $0.60 per share, translating to a jaw-dropping annual yield of 13.82%.
The payout is also safe. In 2017, the company generated adjusted funds from operations (FFO) of $2.51 per share, which was more than enough to cover its dividend obligation of $2.40 per share for the period. (Source: “Uniti Group Inc. Reports Fourth Quarter and Full Year 2017 Results,” Uniti Group Inc, March 1, 2018.)