The main draw of real estate investment trusts (REITs) is that they pay above-average dividend yields. At the moment, the average REIT dividend is around 4%, which is more than double the payout of the typical stock in the S&P 500. Because of that, investors will find many high dividends in the sector.
Three stand-out options that look like good buys right now are Federal Realty Investment Trust (NYSE: FRT), Public Storage (NYSE: PSA), and Crown Castle (NYSE: CCI).
53 and counting
Federal Realty Investment Trust has been a dream stock for dividend investors over the years. The retail REIT has now increased its payout for 53 consecutive years, after giving its investors another raise earlier this month. That's quite an accomplishment since most of its sector peers have suspended their payouts this year because of the impact COVID-19 has had on retailers' ability to pay rent.
Federal Realty hasn't been immune as it only collected 68% of the rent it billed during the second quarter, though that improved to 76% in July. It expects to eventually receive some of the shortfall as it signed deferral agreements covering about 10% of what it billed during the second quarter, with most of the payments expected over the next nine months. When combined with the company's top-tier balance sheet -- which includes one of the highest credit ratings in the REIT sector -- those positive collection trends put its 5.3%-yielding dividend on solid ground.
Storing up a big dividend
Self-storage REIT Public Storage currently pays a 4%-yielding dividend. That payout is on a strong foundation thanks to the company's top-notch balance sheet. It has one of the highest credit ratings in the REIT sector, backed by a low leverage ratio and lots of cash.
That strong balance sheet has helped the REIT navigate the current challenges presented by the pandemic. While rental income has been relatively stable this year, it experienced a significant decline in late charges and administrative fees. That's due in part to waiving a large portion of them at the request of customers struggling to pay their bills at the initial onset of COVID-19 lockdowns. Meanwhile, expenses rose as the company increased its payroll and marketing spend. Despite those issues, the REIT still generated more than enough cash to cover its dividend. That gave it the financial flexibility to acquire a few more self-storage facilities during the quarter, which should boost its future results and keep its dividend on rock-solid ground.
Communicating a long-term growth plan
Infrastructure REIT Crown Castle currently pays a 2.9%-yielding dividend. The cell tower operator also backs its payout with a firm financial foundation. It has an investment-grade credit rating backed by a reasonably conservative leverage ratio. The REIT also has a fairly low dividend payout ratio of less than 80% of its FFO.
However, what stands out about this dividend is its growth potential. Crown Castle believes that it can increase its payout by 7% to 8% per year for the foreseeable future. Powering that growth is a decade-long investment cycle as the company deploys the infrastructure needed to support the rollout of 5G technology in the U.S. That fast-rising income stream could enable this REIT to generate high total returns in the coming years.
Great REITs for income-seeking investors
Federal Realty, Public Storage, and Crown Castle all pay high dividends compared to most publicly traded stocks. More importantly, these above-average payouts are on rock-solid financial foundations since these REITs have strong balance sheets. Because of that, they're ideal options for investors looking for sustainable income streams.