Real estate investment trust (REIT) dividends have taken a big hit this year. COVID-19 impacted many tenants' ability to pay rent, which affected many REITs' income streams, forcing several to reduce or suspend payouts.
However, several REIT dividends haven't just survived but are thriving as they continued to grow this year. Three of those standouts are Realty Income (NYSE: O), W.P. Carey (NYSE: WPC), and Medical Properties Trust (NYSE: MPW). Add in the fact all three offer above-average payouts and they're great options for income-seeking investors these days.
Realty Income: An ideal income REIT
Realty Income has been a dream stock for income investors over the years. The retail REIT has been the epitome of consistency. It has paid a dividend for 602 straight months and increased that payout for 91 consecutive quarters, growing it at a 4.5% compound annual rate since its public listing in 1994. At the moment, Realty Income yields 4.4%, which is a bit ahead of the 3.7% average across the REIT sector.
Driving the REIT's ability to continue growing its dividend is the strength of its portfolio and balance sheet. While Realty Income primarily owns retail properties -- 84% of its rent comes from the sector --- it has lots of diversification since it has tenants in 50 industries. Further, it focuses on properties important to tenant profitability and secures them with triple net leases.
Because of those features, Realty Income has collected 88.9% of the rent it billed during the second quarter, which is much higher than most retail-focused REITs. Meanwhile, it compliments that portfolio with a strong A-rated balance sheet and a solid dividend payout ratio of 81.5% of its AFFO in the turbulent second quarter.
That healthy financial profile gives Realty Income the flexibility to continue expanding its portfolio, which should enable it to keep growing its dividend.
W.P. Carey: Diversification continues to pay dividends
W.P. Carey is a diversified REIT that also focuses on owning triple net leased properties. Currently, 24% of its ABR comes from industrial properties, 23% from offices, 22% from warehouses, 17% from retail, 5% from self-storage, and 9% from a variety of other industries, including education facilities, hotels, movie theaters, fitness facilities, laboratories, and student housing. That diversification and focus on net leases paid dividends during the second quarter as W.P. Carey collected 96% of its U.S. rent.
As a result of that solid rental collection rate, W.P. Carey generated $1.14 per share of AFFO during the second quarter. That more than covered its 5.9%-yielding dividend of $1.042 per share. Meanwhile, the REIT further supports its payout with a solid balance sheet, which features an investment-grade credit rating and relatively low leverage ratio. That gives it the flexibility to continue acquiring properties, which should support its ability to keep increasing its dividend as it has done each year since going public in 1998.
Medical Properties Trust: A healthy income stream
Healthcare REIT Medical Properties Trust owns hospital properties secured by triple net leases. While these properties were at the forefront of the COVID-19 crisis, that didn't stop hospital operators from continuing to pay their rent on time. Overall, Medical Properties expects to receive 98% of the rent it bills this year, with the remaining 2% subject to deferral agreements with interest.
Because of that healthy rental collection rate and its success in acquiring more properties, Medical Properties Trust expects to generate between $1.68 and $1.71 per share of normalized FFO this year. With its 5.8%-yielding dividend currently up to $1.08 per share, it has a conservative dividend payout ratio of less than 64% of its FFO.
The company complements that with a solid investment-grade balance sheet, backed by a leverage ratio right around its target level. That gives it the financial flexibility to continue acquiring hospital properties, which should enable it to keep growing its dividend as it has for the last seven years.
The bottom line
While this year's real estate downturn has had an enormous impact on REIT dividends, several income streams have proven their durability, including those of Realty Income, W.P. Carey, and Medical Properties Trust. These REITs' above-average yields make them great options for investors who desire steady income from the REIT sector.