2. Playing around
Gaming & Leisure Properties offers a similarly high dividend yield at 5.6%. And it, too, uses the net lease approach. But this REIT is focused on owning casinos. It has a sizable portfolio, with around 50 properties across 17 states, but it would be hard to call Gaming & Leisure a diversified REIT, given that it serves just one industry.
The key here is that humans simply like to gamble and always have. So while the casino industry is highly cyclical, it always seems to come back strong when the economy picks back up again. Notably, the REIT trimmed its dividend by about 15% in the 2020 pandemic-led recession to preserve liquidity in an uncertain time, but it has already hiked it twice since that point.
Meanwhile, casino-focused REITs are a fairly new thing, with Gaming & Leisure being among the first to come to market. So there's still more room for this investment-grade-rated REIT to expand. And, once the casino market is saturated, the REIT can focus on the "leisure" space to start diversifying its portfolio into more areas (options that quickly come to mind are amusement parks and ski resorts).
So it muddled through the pandemic downturn in relative stride, is coming out strong, and has ample room to expand (and diversify) in the future. That sounds pretty interesting if you are looking for big yields and willing to take on a name that is quickly bouncing back from a recent dividend cut.
3. Still dealing with the hit
The last name up, Omega Healthcare Investors, requires a stronger stomach. However, with an 8.8% dividend yield, investors are getting compensated well for the extra risk.
Here's the lowdown: Omega owns a portfolio of senior housing assets, with a heavy focus on nursing homes. These have been among the hardest-hit properties during the pandemic. At this point, the REIT has three tenants, representing 8.6% of rents, that are having trouble paying. That's not a good sign, though the adjusted funds from operations (FFO) payout ratio of 78% in the second quarter of 2021 suggests there's some room for adversity before a dividend cut is a big worry.
Notably, occupancy levels are picking up at its properties, so the pain of 2020 appears to be ebbing. And, longer term, the demographic tailwinds supporting its business remain in place. So there's a strong reason to believe that Omega's long-term future is still pretty solid despite the near-term headwinds.
The big picture is simple: The 65-plus population will grow materially over the next couple of decades, and this group needs more medical care. Meanwhile, the most cost-effective way to provide material amounts of care to the sickest patients is in a nursing home. In fact, at this point in time, it looks like demand could outstrip supply in the near future.
So if Omega can get through the current headwinds, the future looks very bright. Investors willing to take on that contrarian bet can collect a very fat dividend along the way.
One of these high yields should fit your fancy
W.P. Carey, Gaming & Leisure, and Omega are very different REITs, and it's unlikely that any investor will find all three attractive. However, given that they cover a broad risk spectrum, from low-risk W.P. Carey to high-risk Omega, there's likely to be one that interests you enough to find its way into your portfolio today.