Real estate investment trusts (REITs) are often an excellent place to search for high-yielding investments. According to Nareit, the average REIT currently yields 3.84%, more than double the 1.51% average for stocks in the S&P 500. And many REITs offer even higher dividend yields than the sector's average.
Three big-time yielding REITs that stand out as top buys this January are Medical Properties Trust (NYSE: MWP), SL Green Realty (NYSE: SLG), and W.P. Carey (NYSE: WPC).
Another big year ahead
Healthcare REIT Medical Properties Trust is coming off a monster year. The company invested about $3 billion in expanding its portfolio of hospital real estate last year. Meanwhile, it collected all the rent it billed. Because of that, its normalized FFO was on track to grow more than 29% in 2020.
There's more growth ahead in 2021. The REIT stated in its third-quarter report that "early indications suggest that our 2021 investment pipeline is similar in both size and composition to several years in our recent history." It should have no problem funding those investments, given its conservative dividend payout ratio and solid balance sheet.
Because of that, Medical Properties Trust seems likely to increase its dividend -- which currently yields 5.1% -- again in 2021, which would be its eighth consecutive year.
A return to the office could send this REIT soaring in 2021
Shares of office REIT SL Green Realty tumbled in 2020 because the pandemic caused most of its tenants to stay out of the office. The stock ended the year down 35%, which pushed its dividend yield above 6.3%.
However, the company navigated the storm reasonably well. While it struggled to collect some rent -- mainly from retailers that lease space in its offices -- it took several actions to cushion the blow, including selling a few office buildings to build up a massive cash war chest and aggressively securing new leases. That allowed the REIT to repay debt, buy back a boatload of stock, and pay a special dividend.
SL Green Realty also increased its base dividend for the 10th straight year. Meanwhile, with it seeing signs of life in the office market and vaccines starting to roll out, -- which should enable companies to return to the office in the coming months -- 2021 appears poised to be a bounce-back year for the REIT.
Diversified REIT W.P. Carey had a surprisingly strong 2020. It collected more than 98% of the rent it billed as strong collection rates from office, industrial, warehouse, retail, and self-storage tenants offset weakness from its fitness, theater, and restaurant tenants. Because of that strong collection rate and its solid balance sheet, W.P. Carey continued growing its dividend and acquiring new properties. The REIT has increased its payout every year since going public in 1998 and now yields 6.1%.
That upward trend in the dividend seems likely to continue in 2021. The REIT was on track to acquire as much as $1 billion of properties in 2020. Meanwhile, it anticipates its investment momentum will continue in 2021. Because of that, the REIT's FFO should continue growing, giving it the funds to keep increasing its high-yielding payout.
High-quality, high-yielding REITs
While most REITs offer income investors above-average yields, Medical Properties Trust, SL Green Realty, and W.P. Carey all take things up a notch. They pay even higher-yielding dividends and also have long track records of increasing their payouts. Those streaks seem likely to continue in 2021, making these REIT great buys this January.