Real estate investment trusts (REITs) were created to pay dividends to their shareholders in exchange for the taxable income passthrough, but just because a yield is high doesn't mean it's time to buy.
There are certainly some with higher dividends and some with higher yields than the three we're going to discuss below, but the companies themselves don't always seem to be as solid a choice as these picks. Indeed, since stock price is a factor in yield, a depressed stock price might make them look more attractive than they should warrant.
That's not the case with these three, each of which have solid fundamentals underlying their current performance. Remember, you're investing in the company, not just its yield. The right picks will provide solid, steady income for years to come.
Tanger Factory Outlet Centers
If you've got any confidence in an in-person shopping revival, Tanger Factory Outlet Centers (NYSE: SKT) could be your REIT for this rally. The operator of 38 upscale open-air outlet centers declared a cash dividend of $0.1775 per share on Jan. 14, giving it a yield of about 5.5% at its current stock price.
While that's only half of its previous quarterly payouts of about $0.35 a share for the past couple years, what's significant here is that the North Carolina-based company suspended dividends for a couple quarters because of the pandemic. The fact that Tanger would step out right now like this, while the pandemic is still raging and even deepening ahead of widespread vaccinations, means Tanger is pretty confident about its prospects for pandemic recovery.
"This dividend declaration reflects Tanger's strong liquidity position, with more than $80 million of cash on hand and $600 million of undrawn lines of credit, and the board's confidence in our business, as demonstrated by the positive traffic and rent collections trends we recently reported," said Tanger President/CEO Stephen Yalof said in the Jan. 14 announcement.
Along with that liquidity is a chance to refresh some of its tenant lineup as it seeks to fill empty spaces that popped up as the occupancy rate at its centers fell to 91.9% at year's end. As Motley Fool's Rick Munarriz observes, "Tanger will get to fill that space with chains that aren't filing for bankruptcy, and that makes them more desirable tenants than the ones they will be replacing."
Annaly Capital Management
Annaly Capital Management (NYSE: NLY) is a member of that specialized group of REITs known as mortgage REITs, or mREITs. Instead of real estate, their portfolios focus on mortgage-backed securities, and mortgages themselves, and they make their money on interest from their investments.
mREITs are known for high dividends, and Annaly is a good example, currently yielding 10.62% as of its Friday, Jan. 15, closing price of $8.29 per share. That's not too shabby. The company did cut its dividend some in 2020, to $0.22 for the each of the past three quarters after four straight quarters of $0.25 per share, but Annaly has a long history of solid paybacks dating back to 1997, and given the priority it places on doing just that, it seems reasonable to bet on that continuing.
Annaly's CEO, who doubles as its chief investment officer, exuded that confidence in the company's third-quarter earnings report: "We are quite optimistic about the operating environment for our business -- particularly for Agency MBS -- due to low interest rate volatility, strong carry, and the lowest financing costs we've seen in the last decade," David Finkelstein said.
That same report noted the company generated core earnings $0.10 per share higher than its dividend, adding more reason to believe the high yield can continue.
Annaly is one of the larger mREITs, and its portfolio is a diverse collection of residential and commercial assets it finances and in which it invests. Barring some kind of seismic shock to the whole interest rate environment, this stock looks promising for an immediate buy.
MGM Growth Properties
Even through the worst of the pandemic pounding on the market -- and on its particular niche -- MGM Growth Properties (NYSE: MGP) has just kept paying dividends, including $0.488 for the past three quarters each and $0.475 for the one before that, giving it a yield of 6.36% on a Jan. 15 closing price of $30.68.
As its name implies, MGM Growth Properties is in the gaming business, and all those other businesses that come with those massive properties. Its portfolio includes a number of MGM-operated casinos, including major names like Mandalay Bay and the Mirage in Las Vegas and MGM National Harbor in Washington, D.C.
That places this REIT squarely in two of the hardest-hit market segments: hospitality and travel. Yet, MGM Growth Properties stock actually held up pretty well for its segment, and given its many years of experience developing and managing marquis properties, it's reasonable to assume this REIT will be the beneficiary of the recovery of that kind of leisure and business travel.
"We are pleased with our industry-leading performance during the quarter and are further encouraged now that all the properties in our portfolio have been reopened to the public," James Stewart, CEO of MGM Growth Properties, said in the company's third-quarter report. "We continued to collect 100% of our rent through October, demonstrating the strength of our master lease and liquidity position of our tenant despite the ongoing economic challenges caused by COVID-19."
Stewart also said growth opportunities will be pursued, adding to the odds that an investment in MGM Growth Properties is a good long-term bet for yield and stock price growth alike.
The Millionacres bottom line
Two of these three high-yield stocks are household names -- Tanger and MGM -- while Annaly is a major presence in the mREIT niche. They also each have their own arguments for underlying resiliency and potential that lessen the likelihood of them being yield traps. Nothing is guaranteed, of course, but for strong income and appreciation prospects, Tanger Factory Outlets, Annaly Capital Management, and MGM Growth Properties deserve a strong look for high-yield REITs to buy now.