Finding quality real estate investment trusts (REITs) with dividends above 7% is becoming increasingly difficult, as share prices have been returning to pre-COVID-19 levels. Luckily, there are still some high-yield REITs out there with well-covered dividends that should continue to provide consistent income to investors. The three we’ll look at are Omega Healthcare Investors (NYSE: OHI), Annaly Capital Management (NYSE: NLY), and Gladstone Commercial (NASDAQ: GOOD).
Omega Healthcare Investors
Omega Healthcare Investors is consistently one of my top three picks when it comes to high-dividend REITs. This healthcare REIT primarily invests in skilled nursing and senior care facilities that are triple net leased to the operators that run them. Omega works with some of the top skilled nursing and senior housing operators in the industry, which made rent collection a much easier task than for other healthcare investors throughout 2020.
While the pandemic had a significant impact on the skilled nursing and senior housing industries, the effect is only temporary. Unlike retail and office real estate, which are vulnerable to changing dynamics from new consumer behaviors and remote workers, skilled nursing and senior care are essential services that can’t yet be replaced. A lower number of new residents moving into these facilities in 2020 will simply mean a higher-than-average number in 2021 and 2022.
While Omega’s revenue took a hit for the year, it still increased its annual AFFO per share in 2020 to $3.23 from $3.06 in 2019. This allowed the company to maintain its dividends in 2020 while also slightly improving its AFFO payout ratio from 2018 and 2019.
Omega Healthcare Investors’ real estate portfolio is also positioned for strong performance over the next several years. While the company is well-diversified across the United States, its highest concentration of facilities are in two of the fastest-growing Sun Belt states in terms of population: Florida and Texas. It's also offering a yield of 7.15%.
Annaly Capital Management
Annaly Capital Management is a mortgage REIT, or mREIT, playing a high-stakes game of rate swaps and continuously refinancing short-term debt while collecting payments on the 30-year mortgages it invests in. Fortunately, it does an excellent job at playing that game, and the cards are stacked in its favor.
For one, it mainly invests in agency mortgage-backed securities (MBS), which are extremely low-risk since they’re guaranteed by Fannie Mae (OTCMKTS: FNMA) or Freddie Mac (OTCMKTS: FMCC). This makes them easy to borrow against and easy to sell.
By using its MBS as collateral, Annaly is able to get the lowest interest rates possible on short-term loans. Considering short-term rates are near 0% right now, it has incredible margins.
With a 9.8% dividend yield, it’s easy to assume this REIT is a yield trap. However, the dividend is well-covered, with a payout ratio of 73%. While interest rates remain low, it’s even quite possible investors will see Annaly’s dividend rate increase in the near future.
It’s important to realize mortgage REITs are an inherently higher-risk investment, so keep a close eye on the company’s performance and any changes in interest rates, as rate increases can quickly squeeze their margins.
Gladstone Commercial invests in single-tenant and anchored multi-tenant net leased properties, with a portfolio primarily made up of office and industrial real estate. While “office” is one of the scarier words in the real estate investing world right now, Gladstone’s portfolio has proven to be quite resilient.
In fact, the REIT experienced a fair amount of growth in 2020. Its portfolio grew by three properties over the year, and its total revenue was up almost 16.5% over 2019. The company’s FFO per diluted share also increased by roughly 6.8% over the same period.
One thing investors love about Gladstone is that it pays out dividends monthly. While there haven’t been any significant dividend increases in several years, investors have been able to rely on the consistent income.
Gladstone does have a high FFO payout ratio, currently at 96%, but it's managed a high payout ratio for several years without disruption to its dividend payments. It also has a consistently well-performing portfolio, with over 55% of its tenants having investor-grade, or equivalent, credit ratings, and its occupancy has never fallen under 95%. The current yield is 7.34%