Sometimes, a large dividend yield is a sign of heightened risk. But there are moments when Wall Street misjudges a company and puts it on the sale rack for reasons that aren't really that appropriate. That's exactly the case with high-dividend names W.P. Carey (NYSE: WPC), Broadmark Realty Capital (NYSE: BRMK), and Omega Healthcare (NYSE: OHI). Here's why investors might want to buy these real estate investment trusts (REITs) today.
1. Great results, and so little love
W.P. Carey is a net lease REIT, which means it owns properties but its tenants are responsible for most of the operating costs of the assets they occupy. It's a fairly low-risk niche in the REIT sector. The company has increased its dividend every year since its 1998 IPO over two decades ago, including a hike each quarter in pandemic-hit 2020. Dividend-wise, it can stand toe to toe with any of its peers, including industry bellwether Realty Income (NYSE: O). But W.P. Carey's 6.2% dividend yield is materially higher than Realty Income's 4.7% yield.
The likely reason for this is that W.P. Carey often works with lower-quality tenants. But still, in 2020, its rent collection rate never dipped below 96%. It basically collected all the rent it was due the whole time during terrible health and economic conditions, so that risk doesn't really seem like a big deal.
And it has an incredibly diversified portfolio. Geographically speaking, roughly 40% of rents come from outside the United States (mostly from Europe). Sector-wise, it's spread across industrial (25% of rents), office (23%), warehouse (22%), retail (18%), and self-storage (5%, "other" makes up the rest). If you're looking for a high-yield net lease name, W.P. Carey should be atop your list.
2. A different mortgage REIT
The next name here is Broadmark Realty Capital, a mortgage REIT. Conservative investors should avoid most mREITs, but this one, and its hefty 8.2% dividend yield, is a little different.
For starters, it doesn't own a portfolio of collateralized mortgage obligations. It makes loans directly to builders to help them pay for the construction or redevelopment of properties. The loans are short-term in nature, generally just a few years. And Broadmark typically only loans about 60% of what a property is expected to sell for, meaning conditions could change and it will still make out just fine. And one more really important thing: While typical mortgage REITs use leverage to juice their returns, Broadmark doesn't use any debt at all.
When you step back, Broadmark has really stepped into a sector (construction loans) that traditional banks have been avoiding since the 2007 to 2009 housing-led recession. Moreover, it is looking to grow its portfolio over time, with over $200 million worth of cash on its balance sheet at the start of 2021 that it can put to work.
And with the pandemic disruption in the construction industry (basically health concerns slowing projects down) in the rearview mirror, it's starting to do just that. Investors looking for a big dividend yield should strongly consider this mortgage REIT as it happily goes about its business in a different way from its typical mortgage peers.
3. In the thick of it
The final high-yield name on this list is going to be an acquired taste, but if you can handle a bit of uncertainty, Omega Healthcare has an incredible track record of success behind it.
First, the good stuff: Omega has increased its dividend annually for 18 consecutive years and today offers investors a hefty 7.2% yield. The bad news is that it owns nursing homes and other senior housing assets, which are purpose-built to bring people most at risk from the coronavirus into the group settings in which it spreads most easily. Yikes!
Here's the thing: Nursing homes fared relatively well through the pandemic because they are generally need-based (few people willingly go into a nursing home) and the government usually pays for care (via Medicare and Medicaid). That's not to suggest there were no problems, but more that Omega appears to have muddled through reasonably well.
Meanwhile, during Omega Healthcare's fourth-quarter 2020 earnings conference call, management noted that more than 90% of its facilities are either vaccinated or are in the process of being vaccinated. This means that they can soon get closer to a "more-normal" operating environment. With the world moving past the coronavirus, Omega has proven it can handle severe adversity and still support its high dividend. That should be of great interest to dividend investors.
One, two, three?
Obviously, this was just a quick overview of why investors looking for real estate stocks with high dividends should be interested in W.P. Carey, Broadmark, and Omega. But it should be enough to entice you to do a deeper dive on one or more of these high-yield REITs. If you do, you might just find that you want to add some new names to your portfolio in March.