The real estate investment trust (REIT) is one of the most popular options for investors seeking a regular income supplement. A REIT must distribute more than 90% of its earnings each year in order to maintain its tax-free status. For investors, that means relatively high dividend payments and consistent dividend policies.
REITs rebounded from the subprime mortgage meltdown of 2008 that hammered real property values for some years.
They have become popular with investors because they often pay a higher dividend yield than corporate or government bonds. The shares also are traded on exchanges, giving them the potential for growth as well as income. The average annual return, as measured by the MSCI U.S. REIT Index, was just under 13% as of March 2019.
However, greater returns come with greater risks, as we certainly learned in 2008. Real estate is not for the faint of heart, even when you're leaving the decisions up to the professionals.
REITs That Pay Out Monthly
While most REITs distribute dividends on a quarterly basis, certain REITs pay monthly. That can be an advantage for investors, whether the money is used for enhancing income or for reinvestment, especially since more frequent payments compound faster.
Here are a half-dozen prospects, each specializing in a different niche of the real estate sector.
American Capital Agency Corporation
American Capital Agency Corporation (AGNC) is managed by American Capital, Ltd., a well-known U.S. investment company. It invests in high-quality mortgage-backed securities including pass-through securities and collateralized mortgage obligations guaranteed by a government-sponsored agency, such as the Federal National Mortgage Association and the Federal Hoem Loan Mortgage Corporation (better-known, respectively, as Fannie Mae and Freddie Mac).
It also invests in some residential and commercial mortgage-backed securities that are not government-guaranteed.
The holdings of the company represent debt that is highly sensitive to changes in market interest rates, making America Capital Agency's holdings susceptible to interest rate risk. However, management extensively hedges its interest rate risks and regularly rebalances the portfolio.
As of November 2019, it had a dividend yield of 11.53% on a dividend of $1.92.
Apple Hospitality (APLE) specializes in upscale hotels. One of the largest hospitality-sector REITs, it owns and operates (through property management companies) about 90 Marriott-branded hotels and 83 Hilton-branded hotels in urban, suburban and developing markets. The company has consistently reinvested a big portion of its cash flows into its portfolio, resulting in high customer satisfaction and stable capital needs.
As of November 2019, the company paid a $3.08 dividend, a yield of 1.27%.
Bluerock Residential Growth
Bluerock Residential Growth (BRG) is a small-cap trust that specializes in investing and operating multifamily residential communities in growth markets throughout the U.S. The current portfolio consists of 44 apartment buildings or complexes in Texas, Florida, Georgia, Illinois, Michigan, North Carolina, Virginia, and Tennessee.
Most of the company's properties have high occupancy rates, above 90%. Unlike many REITs, Bluerock often partners with regional property owners and operators in order to benefit from their expertise in local real estate markets.
Management has grown the trust aggressively since 2014 and is constantly on the lookout to add more high-quality properties to its portfolio.
As of November 2019, the company's dividend yield stood at 5.41%, on a $.65 dividend.
EPR Properties (EPR) is a small-cap growth REIT that specializes in several quite distinct real estate sectors. One is entertainment, performance, and recreation venues such as theaters, theme parks, and casinos. Another is education, specifically public charter schools. A third is wineries and vineyards.
It holds properties in 39 states plus Washington D.C. and Ontario, Canada. EPR Properties typically rents its properties using triple net leases with operational, maintenance, insurance, and tax costs borne by its tenants.
Due to its quite varied business model, the company considerably outperformed the Russell 2000 Index and the MSCI US REIT Index from June 2008 to June 2018.
As of November 2019, the company paid a $4.50 dividend, and its dividend yield was 5.72%.
LTC Properties, Inc. (LTC) manages a portfolio of senior housing and long-term care facilities, including skilled nursing, assisted living, independent living, and memory care facilities. It currently owns more than 200 properties in 28 states.
LTC primarily earns its income by leasing its properties using triple net leases and investing in mortgage loans. Since going public in 1992, the company's stock performance has surpassed that of the NAREIT Equity Index and the S&P 500.
As of November 2019, the dividend was $2.28 for a yield of 4.45%.
Stag Industrial (STAG) invests in industrial-use properties, mostly distribution centers and warehouses with some light manufacturing facilities thrown in. It has 370 properties in 37 states.
Stag leases its buildings to single tenants, so it doesn't have to contend with constant turnover as multi-tenant properties like shopping centers and office parks often do. It claims a 70% tenant retention rate, with an average lease running nearly five years.
As of November 2019, the company paid a $1.43 dividend, and the yield was 4.61%.