Usually, a higher dividend yield means a stock has a higher risk profile. However, that's not always the case. Top-tier real estate investment trusts (REITs) AvalonBay Communities (NYSE: AVB), Boston Properties (NYSE: BXP), and Federal Realty Investment Trust (NYSE: FRT) all currently yield more than 4%, which is well above the 1.7% average yield of a stock in the S&P 500.
What makes those above-average payouts stand out is their durability, as these REITs back their dividends with a high-quality portfolio and a top-tier balance sheet. That combination of yield and sustainability make them great options for income-seeking investors to buy this September.
The easy way to become a landlord
AvalonBay Communities is one of the largest apartment REITs in the country. It currently owns 295 apartment communities (including 19 under development) containing 86,380 homes in 11 states and the District of Columbia. The company typically owns apartments in highly desirable locations like major gateway cities (Boston, New York, and Los Angeles) where population and employment are expanding at an above-average pace. This tends to produce healthy rental growth rates.
All of this enables AvalonBay Communities to pay an attractive dividend that currently yields 4%. The company supports that payout with a conservative dividend payout ratio (68% of its FFO over the past year) and balance sheet. It has one of the highest credit ratings in the REIT sector, backed by a reasonable leverage ratio of 4.9 times debt-to-EBITDAre. That strong financial profile puts its high-yielding payout on rock-solid ground. Because of that, it's a great way to invest in residential real estate without all the headaches that come with being a landlord.
Standing tall amid the storm
Office REIT Boston Properties currently yields 4.5%. One reason it has such a high yield these days is that the stock has been under pressure this year, falling about 38% on concerns that work-from-home trends will crush occupancy and rental rates across its portfolio.
While some companies say they plan to allow their employees to work from home even after there's a vaccine for COVID-19, most employers and office workers still prefer in-office work. Because of that, companies continue paying rent on their office space even though they're not using most of it at the moment. That's giving Boston Properties the cash to continue paying dividends and invest in its large slate of development projects. Add in its top-notch balance sheet, which like AvalonBay features A-rated credit and a reasonably low leverage ratio, and its high-yielding dividend looks like it's on rock-solid ground.
A standout in a challenged sector
Market conditions in the retail sector were already tough before this year, when they became eerily apocalyptic after governments forced many stores to close to help slow the spread of COVID-19. Because of that, many couldn't generate any sales, which impacted their ability to pay rent.
That issue weighed on retail REIT Federal Realty Investment Trust, which only collected 68% of the rent it billed during the second quarter. Because of that, shares tumbled more than 38% this year, which pushed its dividend yield up to 5.3%.
However, despite the company's issues during the second quarter, it had enough confidence in its balance sheet (which also features A-rated credit) and the recent improvements in its rental collection rates to increase its dividend. That marked the 53rd consecutive year it gave its investors a raise. Being able to do so kept it in an elite group of dividend payers, as it's only one of 30 that have grown their payout for 50 or more straight years.
High-quality high yields
Many REITs pay a high-yielding dividend, as the sector's current average is about 3.7%. However, not all those above-average payouts are worth buying because some have sustainability issues. But that's not the case with this trio, as they boast some of the best balance sheets in the sector. Because of that, they offer investors rock-solid high yields, which makes them great options for income-seeking investors to consider buying this month.