Real estate investment trusts (REITs) can be a great way for investors to collect passive income, since most pay generous dividends. Overall, the sector's average yield is above 3.7% compared to the 1.5% average of stocks in the S&P 500.
Some REITs pay even higher dividends. Three that currently stand out for their attractive yields are Medical Properties Trust (NYSE: MPW), SL Green Realty (NYSE: SLG), and MGM Growth Properties (NYSE: MGP).
A healthy yield
Medical Properties Trust is a healthcare REIT focused on owning hospital real estate. The company currently has a 5.3%-yielding dividend. What makes that payout even more attractive is that Medical Properties has increased it in each of the last eight years, including by 4% this year. That's impressive, considering dividends among its healthcare REIT peers are down 10% due to pandemic-related headwinds facing the senior housing sector.
Medical Properties has managed to grow when its rivals have struggled by going on a shopping spree. The REIT has made $9 billion of acquisitions since the start of 2019. That enabled the company to grow its normalized FFO per share by 21% last year alone. The REIT sees even more growth in 2021, which should allow it to continue increasing its dividend.
Standing tall amid the challenges
SL Green Realty is an office REIT focused on Manhattan, where it's the leading office landlord. The company currently offers a 5%-yielding monthly dividend. It's also managed to steadily increase its payout, recently raising it for the 10th straight year. That's impressive given the current pandemic, which forced many of its tenants to pivot to working remotely, emptying office buildings and hurting New York City's economy.
However, SL Green has weathered this storm due in part to the quality of its office buildings. Most of its tenants continued paying rent (including 97.9% of its office tenants and 80.8% of retailers last year) while existing and new tenants signed renewal and new leases at rates near those of expiring contracts.
Meanwhile, the value of high-quality office buildings has held up quite well, enabling SL Green to sell some properties at excellent valuations. That allowed it to shore up its balance sheet, fund its development projects, and return additional cash to shareholders via a special dividend and share repurchase program. Those development projects and buybacks should pay bigger dividends in the future by enabling SL Green to continue increasing its monthly payout.
Gambling on a recovery
MGM Growth Properties is a hospitality REIT focused on owning large-scale destination entertainment and leisure resorts that often include gaming casinos, hotels, convention space, dining, entertainment, and retail options. While the pandemic has impacted these industries, they're about to get a big shot in the arm as vaccines roll out and enable more people to enjoy these activities again.
Despite that current headwind, MGM Growth Properties hasn't had any issues paying its 5.9%-yielding dividend. The company collected 100% of the rent it billed. It also formed a joint venture with non-traded REIT Blackstone Real Estate Income Trust to own two Las Vegas properties in a $4.6 billion deal.
Thanks to these factors, MGM Growth Properties was able to increase its dividend by 3.7% over the past year. Overall, it's boosted its payout by 36.4% since its initial public offering in 2016.
The REIT expects to be able to continue growing in the coming years. It has embedded growth by holding the right of first offer on two gaming properties. On top of that, it can acquire other similar facilities and different types of leisure, entertainment, and hospitality-related properties in the future. As it captures these opportunities, MGM Growth should be able to continue expanding its high-yielding dividend.
These high yields should head even higher in the future
Medical Properties Trust, SL Green Realty, and MGM Growth Properties stand out among REITs. They offer higher-than-average yielding dividends they managed to continue growing last year despite the pandemic.
Those growth streaks should continue over the next few years, since all three REITs have the financial strength to continue expanding their portfolios. That makes them great options for investors seeking big-time dividends backed by commercial real estate.