Real estate investment trusts (REITs) are great for income investors. The IRS requires them to distribute 90% of their taxable income each year, and because of that, REITs often pay high-yielding dividends. On average, REITs currently yield around 3%, double that of stocks in the S&P 500.
However, some REITs offer even higher yields. Three REITs with big-time payouts are Arbor Realty Trust (NYSE: ABR), Medical Properties Trust (NYSE: MPW), and WP Carey (NYSE: WPC). Here's why they stand out as attractive buys for income investors.
An mREIT with an excellent dividend track record
Mortgage REITs (mREITs) don't always have the best dividend track record. That's because they generate lumpier income streams as loan demand, interest rates, and prepayments impact their earnings.
That's what makes Arbor Realty Trust stand out. The mREIT focuses on originating, servicing, and holding loans backed by the stable multifamily sector and has a long history of growing this business, which it finances conservatively. That strategy has enabled the company to grow its dividend steadily.
Overall, it has increased its payout in each of the last nine years, including four consecutive quarters. It has raised the dividend by 13.3% over the past year, boosting the yield up to its current rate of 7.7%. With such a strong track record and a growing business, that payout looks secure and could continue heading higher. That makes Arbor a compelling option for those seeking a big-time income stream.
Great yield and growth prospects
Healthcare REIT Medical Properties Trust currently offers a healthy payout that yields 5.5% and has an excellent dividend track record. The hospital-owner has increased its dividend in each of the last eight years, growing it at a 5% annual rate. And that upward trend should continue.
Driving that view is the company's steadily expanding portfolio. It has signed deals to invest $3.4 billion in new opportunities already this year. These deals help grow its normalized funds from operations (FFO) per share at a healthy rate.
Meanwhile, Medical Properties Trust has been growing its dividend slower than FFO, putting that payout on an even firmer foundation. For example, the company currently expects to generate $1.74 per share of normalized FFO this year while paying out $1.12 per share in dividends, implying a conservative 64% dividend payout ratio. That's enabling it to retain more cash to fund acquisitions, which should allow it to continue expanding steadily.
A steady upward climb
Diversified REIT W.P. Carey currently yields 5.6% and has an exceptional dividend track record. The company has increased its payout each year since going public in 1998.
Driving W.P. Carey's steady growth has been the continued expansion of its globally diversified real estate portfolio -- and that growth is showing no signs of stopping. The company currently expects to invest between $1.25 billion and $1.75 billion this year to expand its real estate portfolio. That should enable the company to continue growing its adjusted funds from operations (AFFO) and its dividend.
Meanwhile, with a solid balance sheet and dividend payout ratio, W.P. Carey has the financial flexibility to continue acquiring properties. Given its broad investment approach, it should have no trouble finding compelling opportunities.
Ideal options for yield-seeking investors
Not only do Arbor Realty, Medical Properties, and W.P. Carey deliver big-time income streams but they also have outstanding track records of steadily increasing those payouts. That combination makes these REITs stand out as great options for those desiring yields above 5%.