In uncertain times, investors often gravitate toward income-producing stocks. While it’s difficult to forego the opportunity for substantial appreciation that non-dividend stocks provide, the tradeoff for income stocks is reduced risk on the downside, as well as the regular monthly or quarterly dividend.
But finding high-yielding stocks without unsustainable payout ratios, risk of dividend cut or weak earnings can be tricky. That’s where Real Estate Investment Trust (REIT) stocks can hold an advantage. Because they are mandated to pay shareholders 90% of their taxable income, the yields tend to be higher than dividend stocks of other sectors.
These three REIT stocks with dividends of 5% or more could be good bets to provide stability and income through good times and bad.
Omega Healthcare Investors Inc. OHI is a long-term healthcare industry REIT, with 63 assisted living and skilled nursing facilities owned throughout the U.S. and U.K.
Most of its properties are triple net leased, meaning the tenants pay the common expenses of the property, such as taxes, insurance and maintenance. This feature is an advantage during inflationary periods, such as the one in 2022.
Unfortunately, the $2.68 annual dividend has not risen much over the past five years. At the same time, it has never been cut, even during the worst of the pandemic. OHI stock is up about 9% over the past 52 weeks in addition to its current dividend yield of 8%.
Investors have shown concern about the adjusted funds from operations (AFFO)/dividend ratio of 88%, and even more about the funds from operations (FFO)/dividend ratio of over 100%. These numbers will need to improve if OHI is to avoid a dividend cut in the future. The nursing home industry is not without its problems, as seen during COVID-19. Inflation is a negative factor as well. However, with an aging baby boomer population, OHI seems well positioned for future growth and somewhat recession-proof.
STORE Capital Corp. STOR is a REIT that acquires and manages single tenant operational real estate. STOR’s portfolio includes over 2,500 retail and industrial properties across the U.S. Its tenants are well diversified across more than 120 industries, reducing the risk of recessionary rent defaults. STOR leases its properties to mid-sized and large businesses with long-term contracts.
STOR is continually seeking out new acquisitions but has also sold profitable assets on a regular basis. In 2022, the company has sold 24 properties, accounting for almost $20 million in profits. Second quarter AFFO was $0.58 per share, an increase of 16.5% year over year , which easily covers the quarterly dividend of $0.385. With the exception of 2020, both revenue and earnings per share (EPS) have been steadily growing over the past five years. Over the same period of time, STOR has rewarded shareholders by growing its dividend by 24%.
Although the stock fell more than 30% from November 2021 to June 2022, it has rebounded nicely since then and is up about 15% over the past two months.
With a current dividend yield of 5.65% and improving metrics, STOR could be a strong investment opportunity.
Arbor Realty Trust ABR is a mortgage REIT that invests in residential and commercial real estate markets in the U.S. The Long Island-based company invests in bridge and mezzanine loans for multi-family and commercial properties.
Like STOR, the diversified nature of ABR’s clients and loan products offers some recession risk protection. While ABR can be more volatile than you would like to see in an income-producing stock, it has more than tripled since its 2020 COVID-19 lows.
Over the past 52 weeks, ABR stock is down about 6% but still profitable when the 10.30% dividend yield is factored in.
ABR suffered a 30% pullback between May and July 2022 but has risen about 24% since then. Its current dividend of $1.56 is well covered by its 12-month FFO of $2.46.
Ford Equity recently upgraded ABR from a score of 3 to 2. If you can handle a bit of volatility, you might consider adding ABR to your portfolio.
Related News Highlights in Real Estate Investing
- The Bezos-backed real estate investment platform Arrived Homes launched a new batch of offerings to allow retail investors to purchase shares of single-family rental homes with a minimum investment of $100. The platform has already funded over 150 properties with a total value of over $50 million.
- Vacation rental investment platform Here set to launch new offering for San Diego property with $100 minimum investment. The company says vacation rentals generate up to 160% more revenue on average than traditional long-term rentals, according to data from Zillow and AirDNA.
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