Real estate investment trusts (REITs) typically pay high-yielding dividends since they must distribute 90% of their taxable income to remain in compliance with IRS regulations. The average one in the sector currently yields 3.7%, more than double the S&P 500's 1.5% dividend yield.
However, some REITs pay even bigger dividends. Three that stand out for their high yields in the sector are mortgage REIT (mREIT) Arbor Realty Trust (NYSE: ABR), office REIT SL Green Realty (NYSE: SLG), and industrial REIT STAG Industrial (NYSE: STAG).
Arbor Realty Trust: A big-time yield with big-time growth
Arbor Realty Trust currently clocks in with an eye-popping 8.3%-yielding dividend. While dividends that high are usually a cause for concern, that's not the case with Arbor's payout, since mREITs typically have high dividend yields.
What makes Arbor stand out from the crowd is its unique business model. The REIT primarily finances multifamily properties. It originates loans that it either holds on its balance sheet or sells to government-sponsored enterprises. It also services many of the loans it sells. This business model enables the company to generate lots of returning income from loans it holds and services.
That model has helped it to steadily grow its portfolio and dividend. The REIT has increased its payout for nine straight years, including boosting it by 10% over the past 12 months. Supporting that big raise was a record year in 2020, as it originated $9.15 billion in loans, up 20% from 2019. Meanwhile, it secured new funding sources, which should enable it to keep growing its portfolio and dividend in the future.
SL Green Realty: A sky-high payout
SL Green Realty, Manhattan's largest office landlord, currently pays a 5.1%-yielding dividend. While the pandemic has been challenging for the city, SL Green has weathered that storm reasonably well. The company collected 94.8% of the rent it billed last year, including 97.9% from its office tenants.
Meanwhile, it achieved its leasing target and took advantage of strong market conditions for trophy office properties to sell several at premium prices. That gave it the cash to repay debt, pay a special dividend, fund development projects, and repurchase some of its discounted shares. SL Green also increased its dividend for the 10th straight year.
The company's moves last year put its dividend on a firmer foundation. Meanwhile, many of the headwinds facing the office REIT should fade in 2021 as the pandemic winds down. The company is working to speed up its tenants' return to the office by setting up testing sites across its entire portfolio. Combine that with the rapid rollout of highly effective vaccines, and most of its tenants should be able to return to their offices in the coming months.
All that should enable SL Green to continue securing new leases for its existing space and move forward with its major development projects. These factors suggest its already high-yielding dividend could continue growing in the coming years as the New York City market bounces back.
STAG Industrial: A durable dividend
STAG Industrial's dividend currently yields 4.3%. The industrial REIT supports that payout with a diversified portfolio of single-tenant warehouse, light manufacturing, and flex/office properties that are essential to its tenants' success. That's evident in its rental collection rate, which averaged 99.6% in 2020.
The REIT compliments that resilient portfolio with a solid balance sheet and conservative dividend payout ratio. That gives it the financial flexibility to continue expanding its portfolio. STAG Industrial acquired 32 buildings last year for $579.9 million, which enabled it to grow its cash flow and dividend. It expects to purchase another $800 million to $1.2 billion of properties this year, which should support continued dividend growth.
Big yields backed by commercial real estate
Arbor Realty Trust, SL Green Realty, and STAG Industrial offer higher-than-average yields, even for the REIT sector. Because of that, they're great options for investors seeking big-time income streams. Even better, all three REITs have a history of growing their payouts, suggesting that investors could collect even bigger dividends in the future.