In times of uncertainty, investors often gravitate towards income-generating stocks. While it’s hard to give up the opportunity for substantial appreciation that non-dividend stocks provide, the payoff for income stocks is reduced risk on the downside, much like the regular monthly or quarterly dividend.
But finding high-yield stocks without unsustainable payout ratios, risk of dividend cuts or weak earnings can be tricky. This is where Real Estate Investment Trust (REIT) shares can have an advantage. Because they are required to pay shareholders 90% of their taxable income, earnings tend to be higher than stock dividends in other industries.
These three REIT stocks with dividends of 5% or more can be good bets to provide stability and income in good times and bad.
Related: This little-known REIT has produced double-digit annual returns for the past five years
Omega Healthcare Investors Inc. (NYSE: OHI) is a long-term healthcare industry REIT with 63 assisted living and qualified nursing facilities in the US and UK
Most of their properties are rented on a triple net basis, meaning tenants pay the common expenses of the property, such as taxes, insurance and maintenance. This feature is an advantage in inflationary periods such as 2022.
Unfortunately, the annual dividend of $2.68 has not increased much in the last five years. At the same time, it was never cut, even during the worst of the pandemic. OHI’s stock is up about 9% over the past 52 weeks, on top of its current dividend yield of 8%.
Investors have expressed concern about the adjusted operating resources (AFFO)/dividends ratio of 88%, and even more about the operating resources (FFO)/dividends ratio above 100%. These numbers will need to improve if the 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 also a negative factor. However, with an aging baby boomer population, OHI seems well positioned for future growth and somewhat recession-proof.
SHOP Capital Corp. (NYSE: STOR) is a REIT that acquires and manages single-tenant operating real estate. STOR’s portfolio includes more than 2,500 commercial and industrial properties across the US. Its tenants are well diversified across more than 120 sectors, reducing the risk of recessionary rent defaults. STOR leases its properties to medium and large companies with long-term contracts.
STOR is continually looking for new acquisitions, but has also regularly sold profitable assets. In 2022, the company sold 24 properties, representing nearly $20 million in profits. Q2 AFFO was $0.58 per share, up 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 growing steadily over the past five years. In the same period, STOR rewarded shareholders by increasing its dividend by 24%.
While the stock has dropped more than 30% from November 2021 to June 2022, it has recovered well since then and is up about 15% over the past two months.
With a current dividend yield of 5.65% and improved metrics, STOR could be a strong investment opportunity.
Arbor Realty Trust (NYSE: ABR) is a mortgage REIT investing in US residential and commercial real estate markets. The Long Island-based company invests in bridge and mezzanine loans for multi-family and commercial properties.
As with STOR, the diverse nature of ABR’s customers and loan products offers some protection against the risk of recession. While the ABR may be more volatile than you’d like to see in an income-generating stock, it has more than tripled since its 2020 lows on COVID-19.
Over the past 52 weeks, ABR shares are down about 6% but are still profitable when the 10.30% dividend yield is factored in.
The ABR contracted by 30% between May and July 2022, but has increased by around 24% since then. Its current dividend of $1.56 is well covered by its 12-month FFO of $2.46.
Ford Equity recently raised ABR from a score of 3 to 2. If you can handle a little volatility, consider adding ABR to your portfolio.
Related News Highlights in Real Estate Investment
The real estate investment platform backed by Bezos arrival houses launched a new batch of offerings to allow retail investors to buy shares in single-family rental homes with a minimum investment of $100. The platform has financed over 150 properties with a total value of over $50 million. .
Vacation rental investment platform Here set to launch a new offering for the San Diego property with a minimum investment of $100. 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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