Real estate investment trusts (REITs) are known for paying above-average dividends, but only a small percentage of equity (property-owning) REITs have stable yields above 5% and long-term growth potential. Here are three, in particular, that could belong on the radar of income-seeking investors, as well as those who want long-term capital appreciation without taking on too much risk.
A casino REIT that could become much more
MGM Growth Properties (NYSE: MGP) is a REIT that owns a portfolio of casino properties. And not just any casino properties -- it owns some of the highest-quality properties in the United States, most of which are operated by MGM Resorts (NYSE: MGM). Just to name a few, MGM Growth Properties owns iconic Las Vegas properties including Mandalay Bay and The Mirage, as well as the MGM National Harbor in the Washington, D.C. area and The Borgata in Atlantic City, plus about a dozen others.
The key point to know is that MGM Growth Properties derives most of its rental income from a single top-quality tenant, who leases the properties on a long-term, net lease basis. In the future, the REIT plans to expand its horizons beyond MGM-operated properties and even aims to add some non-gaming elements to diversify its portfolio. So, while the REIT currently has an attractive 5.5% dividend yield, investors could see this income stream rise in the future.
Steady income and a top-notch tenant
One of the more interesting high-yielding REITs on my radar is Easterly Government Properties (NYSE: DEA). As the name implies, the company owns commercial buildings that are leased to various government agencies, such as the FBI, FDA, VA, and many others. Most of the REIT's 79 properties are high-quality office buildings and medical real estate, and a full 99% of the rental income comes from the U.S. government.
In fact, Easterly is the second-largest owner of federally leased real estate in the U.S. Most of its properties are leased for 10-to-15-year terms, and there's virtually no chance of its tenants defaulting on rental obligations, as exists with most other equity REITs.
To be sure, Easterly isn't likely to produce sustained, market-beating returns over the long run, but if a near-bulletproof 5% yield and the gradual upside potential as its property values appreciate sounds appealing, Easterly belongs on your radar.
A massive market opportunity and resilient income
Physicians Realty Trust (NYSE: DOC) is a medical office REIT with a dividend yield of almost exactly 5% as of this writing. And this REIT could be one of the best combinations of steady, predictable income and long-term growth potential in the market.
It's tough to imagine a more resilient, recession-resistant type of commercial real estate than medical offices, especially the high-quality kind that Physicians Realty Trust owns. As of the first quarter of 2021, Physicians Realty Trust owns 274 properties, most of which are medical office buildings located on campus or affiliated with major healthcare systems. Tenants sign long-term leases, and the underlying businesses (healthcare practices) are an essential service in good times and bad. In fact, Physicians Realty Trust's rent collection rate didn't significantly drop during the COVID-19 pandemic at all.
Physicians Realty Trust has about $5 billion worth of healthcare real estate in its portfolio now but estimates its investable universe (properties it could consider owning) to be at least $250 billion in size. So, not only is this a predictable, resilient income generator, but it could have tremendous long-term growth potential as well.
Buy for steady growth
To be perfectly clear, none of these REITs are likely to make you rich quickly. But what they will do is make you rich slowly and without an extraordinary amount of risk. All have top-quality tenants on long-term leases, room for growth, and other factors that should keep their income and stock prices rising steadily for years to come.