Top 5 REITs for Income Investors in 2024
December 28, 2023
Top 5 REITs With Dividend Yields Up to 18%
Real estate investment trusts (REITs) took a thrashing in 2022 and much of 2023. Over that two-year period, the Federal Reserve raised its key lending rate 11 times, from a range of near-zero to 5.25%–5.5%.
Higher interest rates make it more expensive for businesses to borrow money and service debt, cutting into profits. And REITs are known for aggressive acquisition strategies.
While U.S. interest rates are still at decade highs, the Fed has maintained its key lending rate at the same level since last July. In early November, the Fed hinted that it was done raising its rates for this cycle. On December 13, the Fed not only held its interest rate steady again, but the Fed’s chair, Jerome Powell, said it was “not likely” that the Fed would raise its interest rates further.
If anything, analysts expect that the Fed will cut its interest rates in 2024 as many as three times.
Suffice it to say, stock investors have been exceptionally bullish since early November. The biggest surprise of the stock market may have been the REIT sector. In November, the Real Estate Select Sector SPDR Fund (NYSEARCA:XLRE) rallied by an impressive 12.48%. The only sector that performed better than that was technology, with the Technology Select Sector SPDR Fund (NYSEARCA:XLK) advancing 12.9% in the same month.
With inflation tamed, interest rates on the decline, and the likelihood of a soft economic landing, the outlook for REITs is bullish for 2024.
Some of the best REIT stocks have some of the highest dividend yields. Here are five of them:
Medical Properties Trust Inc
Populations are rapidly aging around the world, and I don’t see this trend reversing. That translates to an increasing demand for medical facilities, such as those owned by Medical Properties Trust Inc (NYSE:MPW).
Founded in 2003, Medical Properties Trust is a REIT that owns hospitals and other health-care facilities in 31 U.S. states, seven European countries, and South America. It owns 441 properties in 10 countries, and those properties have a total worth of about $19.0 billion. (Source: “Our Portfolio,” Medical Properties Trust Inc, last accessed December 20, 2023.)
Medical Properties Trust Inc has paid dividends for 19 consecutive years and hiked them for 10 straight years. The company cut its payout level by about 50% in the third quarter of 2023 as it continued to work on improving its operations and financial growth.
MPW stock’s 17.43% dividend yield (as of this writing) is quite high, but that’s a result of its share price trending lower in 2022 and 2023 on the heels of rising interest rates.
Medical Properties stock’s price may be down, but its dividend appears safe, considering the company’s high free cash flow, which was $739.01 million in 2022. (Source: “Medical Properties Trust, Inc. (MPW),” Yahoo! Finance, last accessed December 20, 2023.)
It’s the trust’s high free cash flow that allows it to pay dividends.
Global Net Lease Inc
Global Net Lease Inc (NYSE:GNL) is a diversified REIT that owns 1,304 properties in 11 countries, covering 66.8 million rentable square feet. That’s equivalent to the area of about 1,160 NFL football fields. (Source: “Portfolio Overview,” Global Net Lease Inc, last accessed December 20, 2022.)
The company used to be a lot smaller, but in September, Global Net Lease and The Necessity Retail REIT Inc announced that they had completed a previously announced merger. Now, Global Net Lease is the third-largest net lease REIT with a global presence. (Source: “Global Net Lease and the Necessity Retail REIT Complete Merger and Internalization Transaction,” Global Net Lease Inc, September 12, 2023.)
The company’s top 10 tenants account for 21% of its straight-line rent, with no single tenant accounting for more than 3.1% of its rental income.
Global Net Lease Inc’s 815 tenants include investment-grade organizations such as FedEx Corp (NYSE:FDX), Home Depot Inc (NYSE:HD), Starbucks Corp (NASDAQ:SBUX), the U.S. Government, and Whirlpool Corporation (NYSE:WHR).
Global Net Lease stock has been paying dividends since 2015. It started out with monthly dividends but moved to quarterly distributions in 2019. As of this writing, its most recent quarterly dividend was $0.354 per share, for a yield of 15.38%.
Generation Income Properties Inc
Generation Income Properties Inc (NASDAQ:GIPR) is a REIT that went public in October 2021. The company operates in the sweet spot of the real estate sector: single-tenant retail, industrial, and office properties.
During the 2020 COVID-19 crisis, some retail property owners fared better than others. The clear winners were owners of stand-alone retail properties that were leased to investment-grade tenants. This included banks, grocery stores, pharmacies, and convenience stores.
Generation Income Properties Inc, based in Tampa, Florida, manages a diverse portfolio of retail, industrial, and office properties with lease terms that have less than 10 years remaining. By having shorter-term leases for investment-grade properties in high-density markets, the REIT is able to generate above-market returns.
The vast majority (92%) of its tenants are investment-grade, its properties have a 100% occupancy rate, and 92% of its properties are tied to contractual rent increases. (Source: “About GIPR,” Generation Income Properties Inc, last accessed December 20, 2023.)
Generation Income Properties’ diverse tenant base includes 7-Eleven, Inc., Dollar General Corp (NYSE:DG), Pratt & Whitney, and Starbucks Corp.
Since the company only went public in October 2021, it doesn’t have a long dividend history. However, in the short time that GIPR stock has been trading on the market, it has never skipped a monthly payout.
As of this writing, Generation Income Properties pays reliable monthly dividends of $0.039 per unit, for a yield of 11.7%.
Uniti Group Inc
Uniti Group Inc (NASDAQ:UNIT) is a specialty REIT that acquires and constructs mission-critical communications infrastructure in the form of fiber optics, copper, and coaxial broadband networks.
The company owns and operates 139,000 fiber route miles and 8.4 million fiber strand miles covering 300,000 commercial buildings in 300 U.S. metropolitan markets. (Source: “BofA Securities 2023 Leveraged Finance Conference Presentation,” Uniti Group Inc, November 28, 2023.)
Its reliable high-speed connectivity and networking services connect more than 28,000 customers nationwide. Most of its network is located in the Eastern and Midwestern portions of the U.S.
Three of its tenants are AT&T Inc. (NYSE:T), T-Mobile US Inc (NASDAQ:TMUS), and Verizon Communications Inc. (NYSE:VZ). Uniti Group also leases infrastructure assets to Internet giants like Alphabet Inc (NASDAQ:GOOG) and Amazon.com Inc. (NASDAQ:AMZN).
Most people don’t associate tech stocks with high-yield dividends. Fortunately for Uniti Group stockholders, for a business to qualify as a REIT, it legally has to distribute at least 90% of its taxable income to shareholders as dividends.
In December, UNIT stock paid quarterly cash dividends of $0.15 per share, for a yield of 10.85% (as of this writing).
That’s massive, especially compared to the dividend yields of technology giants like Microsoft Corp (NASDAQ:MSFT), which has a yield of 0.81%, and NVIDIA Corp (NASDAQ:NVDA), which has a yield of just 0.03%.
Service Properties Inc
Service Properties Inc (NASDAQ:SVC) is a REIT with more than $11.0 billion invested in two asset categories: 1) hotels and 2) service-focused retail net lease properties. (Source: “Investor Presentation: November 2023,” Service Properties Trust, last accessed December 20, 2023.)
Service Properties is the eighth-largest hotel company. As of September 30, it owned 221 hotels with more than 37,000 guest rooms throughout the U.S., as well as in Puerto Rico and Canada. Its hotel chains include America’s Best Value Inn, GuestHouse, The James Hotels, Red Lion Hotels, and Sonesta Hotels and Resorts.
By service level, 40.1% of the REIT’s hotels had full service, 37.3% had extended-stay service, and 22.6% had select service. By chain scale level, 46.5% were upscale, 38.5% were midscale/upper midscale, and 15.0% were upper upscale.
As of the end of September, the REIT also owned 761 retail service-focused net lease properties totaling more than 13 million square feet throughout the U.S. The geographically diverse retail property portfolio includes 21 industries and 135 brands. Its tenants include Burger King, Express Oil Change, KFC, Kohls Corp (NYSE:KSS), and TravelCenters of America.
Service Properties Inc has been paying dividends since 2005. The company suspended its payout only once, during the 2008/2009 financial crisis. It also reduced its dividend level in 2020 during the COVID-19 pandemic, which shouldn’t be a big surprise.
As of this writing, SVC stock pays quarterly dividends of $0.20 per share, for a yield of 9.46%.
The Lowdown on High-Yield REITs
As mentioned earlier, REITs turned bullish in November after the Federal Reserve held its key lending rate steady and said, not only was it done with interest rate hikes, but it would be cutting its rates in 2024.
While the share prices of REIT stocks took a hit in 2022 and most of 2023, the best REITs still provided investors with reliable, inflation-crushing dividends. With the economic outlook being more bullish for REITs in 2024, a share-price recovery could be in the making.
Historically, REITs have often outperformed the broader market after the Fed’s monetary tightening cycles have ended. This took place in November, with the Real Estate Select Sector SPDR Fund climbing by 12.48%. Then, in the first two weeks of December, the fund climbed by a further 7.05%.
With interest rate cuts on the horizon, the best REITs look poised for outsized gains in 2024.
