Wall Street has a habit of getting caught up in fads, but dividend investors looking for value should step back and think about what's behind the ticker. Here are three high-yield stocks that have solid underlying businesses in the real estate space. While investors clamor for the next hot trade, you can collect fat dividends and avoid the speculation with well-positioned real estate investment trusts (REITs) like W.P. Carey (NYSE: WPC), Federal Realty Investment Trust (NYSE: FRT), and Healthpeak Properties (NYSE: PEAK). Here's a primer on each.
1. A little bit of 'everything'
Leading up the list is W.P. Carey, which offers investors a generous 6.1% yield backed by over two decades of annual dividend increases. In fact, the REIT has increased its dividend each year since it went public in 1998. With the broader market, using the S&P 500 Index as a proxy, yielding less than 2%, these stats alone would make this REIT stand out. But there's much more to like.
For starters, W.P. Carey has a widely diversified portfolio, spread across the industrial (24% of rents), warehouse (23%), office (23%), retail (17%), and self-storage (5%) sectors ("other" makes up the rest). It also generates roughly 37% of its rent roll from outside of the United States. This allows the REIT, which tends to invest opportunistically, the ability to put money to work wherever it sees the most opportunity. Diversification is good for your portfolio -- and it's been very good for W.P. Carey's over time, too.
Meanwhile, the REIT is actually performing quite well today despite the coronavirus headwinds. To put some numbers on that, it collected 99% of its rents in December, and its collections never dipped below 96%, even at the worst of the pandemic. If you're looking for a good-yielding REIT with a strong foundation, W.P. Carey should be at the top of your list.
2. Retail will come back
The next name up is Federal Realty Investment Trust, which owns roughly 100 or so strip malls and mixed-use developments. To be fair, the REIT is facing very real issues today as retail stores struggle to deal with customers who are social distancing because of the pandemic. At one point in early 2020, Federal Realty's rental collection rate was close to 50%, which is terrible. However, that number had improved to 85% in October.
The truth is, things are likely to get worse before they get better. Federal Realty's management team is warning that occupancy is likely to dip in early 2021 as retailers close more stores and it works to find new tenants. But Federal Realty is financially strong -- it has an investment-grade-rated balance sheet and a highly curated portfolio, focused on wealthy areas with large populations. These are the types of properties in which retailers want to locate their businesses, with Federal Realty having a long history of spending the time and money to ensure its assets are top customer destinations.
This brings up the REIT's incredible 53-year streak of annual dividend increases. That's twice as long as what's needed to be called a Dividend Aristocrat. You don't achieve that kind of success by accident; you do it with a carefully honed playbook -- the one management is using right now as it looks to emerge from the coronavirus pandemic a stronger company. Act now, and you can collect a nearly 5% yield while you wait for the storm clouds to clear.
3. People are still getting older
The last name here bucks the trend a little bit because Healthpeak Properties cut its dividend in 2016 and has yet to start increasing it again. This requires a bit of an explanation. At that point in time, Healthpeak was dealing with troubles in its nursing home investments and chose to spin them off as a separate company. The goal was to have the combined dividends of the two entities equate to the old dividend, but the new nursing home-focused REIT it spun off ended up cutting its dividend, so it was a de facto dividend cut. This transaction, however, led to an important revamp of Healthpeak's business.
Today, the healthcare REIT's portfolio is a mix of senior housing, medical office, and medical research assets. The spread is fairly balanced, with each representing around a third of the rent roll. It's probably the most diversified of the large healthcare REITs. That's notable because it has more material exposure to medical office and medical research properties, both of which have been in high demand of late.
And while the REIT's senior housing portfolio is under pressure, its balanced portfolio offers a good way to gain a little exposure to the aging of the baby boomer generation without jumping in with both feet. In fact, despite the headwinds in senior housing, Healthpeak was able to grow net operating income a respectable 2.7% through the first nine months of 2020.
Longer term, the pandemic hasn't changed the demographics of the world, which is seeing more and more older adults -- a group that will eventually need more medical care. With a roughly 4.8% yield and long-term population trends on your side, investors looking for some exposure to the out-of-favor healthcare sector should take a close look here.
A bit of fortitude
When the stock market gets crazy, it can be hard to summon the courage to go against the grain. With the pandemic, that's even more true for Federal Realty and Healthpeak. But this pair appears well-positioned to weather the storm and remain strong competitors. W.P. Carey is a bit easier to like, given its strong operating performance and wide diversification. But even here, it's far from the message boards that have caught Wall Street's eye. Don't let that stop you -- sometimes, collecting big, boring dividend checks is better than hoping on a wing and a prayer that you don't end up the last one into an investment fad.