Real estate investment trusts (REITs) are well known for paying above-average dividend yields. Whereas the S&P 500 currently yields 1.8%, the average REIT is around 4%. However, some offer even higher payouts. Three top options that currently pay more than 5% are Federal Realty Investment Trust (NYSE: FRT), Medical Properties Trust (NYSE: MPW), SL Green Realty (NYSE: SLG).
A high-yield dividend stalwart
Federal Realty Investment Trust has been an exceptional dividend stock over the years. The retail REIT has increased its payout for a remarkable 53 consecutive years. While there was some initial concern about whether it could keep that streak alive this year, the company had enough confidence in its rent collection rate and balance sheet to recently increase its payout by another penny.
With its latest increase, Federal Realty now yields 5.4%. While the company didn't generate enough FFO to cover that payout during the second quarter ($0.77 vs. $1.06 for the increased dividend), its rental collection rate has improved from 68% during the second quarter to 76% during July. Further, it signed deferral agreements covering 10% of the rent it billed during the second quarter, which tenants should repay over the next nine months. Add that improving rental income to the company's top-tier balance sheet -- which features one of the highest credit ratings in the REIT sector -- and the payout appears to be on rock-solid ground.
A healthy payout
Healthcare REIT Medical Properties Trust doesn't have quite the same dividend track record as Federal Realty. However, the hospital owner has increased its payout in each of the last seven years and currently yields a healthy 5.4%.
That payout is on solid ground, given the REIT's sound financial profile. While hospitals have been ground zero for COVID-19, Medical Properties' tenants have paid 98% of their rent so far this year, with the other 2% subject to repayment plans plus interest. Because of that strong rental collection rate, and some recent acquisitions, Medical Properties is on track for a dividend payout ratio below 64% this year, a conservative level for a REIT. Add in a solid balance sheet with a reasonable leverage ratio of 5.5 times debt-to-EBITDA, and this high-yielding payout is on a sustainable foundation.
A cash-backed high-yielding monthly dividend
Office REIT SL Green Realty currently yields an eye-popping 7.3%. That's due largely to concerns about the Manhattan real estate market -- where it's the largest office landlord -- following COVID-19. However, the company's office tenants paid 95.7% of their rent during the second quarter. Further, the company has been able to continue signing new and renewal leases despite the pandemic, with second-quarter contracts coming in a mere 0.8% below prior rental rates even though it was one of the worst markets in quite a while.
Despite the challenges of the quarter, SL Green covered its big-time dividend -- which it pays monthly -- with ease as its payout ratio was a comfortable 52%. Meanwhile, it exited the quarter with a cash-rich balance sheet at more than $1.04 billion in cash and marketable securities and has a solid investment-grade credit rating. Those factors put its high-yielding payout on solid ground.
High-quality, high yields
Federal Realty, Medical Properties, and SL Green all pay well-above-average dividends, even for REITs. Those payouts have proven their durability this year, as they've maintained them despite the turmoil caused by COVID-19 thanks in part to their strong balance sheets. Because of that, they're great options for yield-seeking investors to buy for the long haul.