The yield on the S&P 500 Index is a paltry 1.3%. The average real estate investment trust (REIT), using Vanguard Real Estate Index ETF as a proxy, yields just 2.1%. If that sounds anemic to you, then you aren't alone.
But don't fear: W.P. Carey (NYSE: WPC) has a 5.6% yield, Omega Healthcare Investors (NYSE: OHI) offers 7.3%, and Gaming and Leisure Properties (NASDAQ: GLPI) chimes in with a yield of 5.7%. Here's what you need to know about these high yields and why you might want to add one or more to your portfolio today.
1. A diversified net lease leader
W.P. Carey was one of the first companies to develop the net lease approach to property investing, using sale-leasebacks to provide companies a way to raise cash while retaining access to their vital assets. The REIT has increased its dividend every year since its initial public offering (IPO) in 1998. And now, it's on the verge of becoming a Dividend Aristocrat.
One of the big underpinnings of its business is diversification, with 25% of its rents coming from industrial assets, 22% from warehouses, 22% from offices, 18% from retail, and 5% from self-storage properties ("other" makes up the difference). W.P. Carey also generates around 38% of its rent roll from outside the United States.
The company's diversification creates a strong foundation that has proven it can stand the test of time, noting that it increased its dividend each quarter in 2020 despite the global coronavirus pandemic. This is the type of company you buy with the intent of holding forever.
2. The wrong place or the right place?
The next name here is Omega Healthcare Investors, which has the highest yield of this trio. In 2020, it was in exactly the wrong property type -- senior housing. Indeed, the coronavirus spreads easily in group settings and is particularly dangerous for older adults. But Omega managed to muddle through without a dividend cut, unlike some of its larger healthcare REIT peers.
Now, to be fair, the government stepped in to help senior housing providers (which are the REIT's direct tenants), so there is some risk here. But Omega continues to believe that Uncle Sam will pitch in until the pandemic hit is over, given the importance of the property type it favors.
Why? Because Omega's portfolio is heavily tilted toward nursing homes (78% of rents), which are necessity assets, not places people move to by choice. This is also a reason to like Omega's long-term future since the number of seniors in the United States is steadily increasing as baby boomers hit retirement age. In fact, the company expects the 65+ population to increase by nearly 45% between 2020 and 2040.
Meanwhile, the need for skilled nursing increases along with age. So, assuming that Omega's customers get the help they need to muddle through the pandemic hit, there are very bright silver linings on the current clouds. Omega plans to be there to benefit and reward investors along the way with big dividends.
3. A little gamble
The last name here, Gaming and Leisure Properties, comes with more risk, which is a bit of wordplay. That's because of the company's primary property focus: casinos. It owns 52 locations across 17 states, and they are generally leased to big-name operators. So there's some diversification in the mix here.
However, investors shouldn't overlook the fact that casinos are basically all the REIT owns and that, unlike nursing homes, visiting a casino is entirely optional. So risk-averse investors and those who don't invest in so-called "sin" stocks might want to take a pass.
However, Gaming and Leisure Properties uses the same net lease approach that underpins W.P. Carey's business, which helped the casino owner sail through 2020 without too much difficulty. To be fair, the dividend was cut from $0.70 per share quarterly to $0.60 in May last year (paid in a mixture of cash and stock), but it's already back to $0.67 (all cash) and likely to keep rising higher if history is any guide.
That's because Gaming and Leisure Properties continues to expand its portfolio, actually buying a few casinos in 2020 and a couple more in 2021. This real estate stock isn't as easy to love as W.P. Carey or even Omega. Still, for more aggressive investors, it seems like Gaming and Leisure Properties is set to come out of the pandemic downturn a better company than when it entered.
Three high-yield choices
W.P. Carey's slow and steady diversified approach to the real estate sector has paid off for decades and is likely to keep doing so for years to come. Even the most conservative investors should find it appealing.
Omega is a bit more focused and riskier, but its nursing home-centric portfolio provides necessary services that are set to see increasing demand. That should be enough to entice a lot of investors to its huge yield.
Gaming and Leisure Properties, meanwhile, is probably best for risk-tolerant investors. Still, as gaming comes back, its portfolio, which grew during the downturn, should bounce back as well and keep that dividend growing.
If you are on the lookout for high yields, one of these three stocks will probably be appealing enough for you to add to your portfolio today.