A real estate investment trust (REIT) is one of the most popular types of instruments for income-seeking investors. REITs must distribute over 90% of their earnings each year to maintain their tax-free status, resulting in high dividend rates and consistent dividend policies. REITs have rebounded nicely from the subprime mortgage meltdown of 2008 that hammered real property values a decade ago: From 2010 to 2017, they've produced an average annual return of nearly 13%, according to the MSCI U.S. REIT Index – compared to 10.49% for the S&P 500 in the same period.
While most distribute dividends on a quarterly basis, certain REITs pay monthly. That can be an advantage for investors, whether the money is for enhancing cash flow or for reinvestment purposes (more frequent payments compound faster).
Here are a half-dozen hot 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 mortgage-backed securities (MBS) of a high-quality nature: pass-through securities and collateralized mortgage obligations (CMOs) guaranteed by a government-sponsored agency, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (better-known, respectively, as Fannie Mae and Freddie Mac). The REIT 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 October 2018, it has a dividend yield of 12.12% on a dividend of $2.16.
Apple Hospitality (APLE) specializes in upscale hotels; one of the largest hospitality-sector REITs, it owns and operates (through property management companies) some 90 Marriott-branded 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. Additionally, in 2015, it restated its credit facility agreement, resulting in better terms.
As of October 2018, the company pays a $1.20 dividend, a yield of 7.31%.
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 United States. 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 other REITs, Bluerock often partners with leading regional property owners and operators, benefiting from their expertise in local real estate markets.
Management has grown the trust aggressively since 2014, constantly on the lookout to add more high-quality properties to its portfolio. As of October 2018, the company's dividend yield stood at 7.54%, on a $.65 dividend.
EPR Properties (EPR) is a small-cap growth REIT that specializes in several areas. One is entertainment, performance and recreation venues (theaters, theme parks, casinos, etc.); another is education (public charter schools); the third is wineries and vineyards. It holds these in 39 states, the District of Columbia and Ontario, Canada. Due to its rather varied specialization, the company considerably outperformed the Russell 2000 Index and MSCI US REIT Index from June 2008 to June 2018.
EPR Properties typically rents its properties using triple net leases with operational, maintenance, insurance and tax costs borne by its tenants. As of October 2018, the company pays a $4.32 dividend, and its dividend yield is 6.46%.
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 has over 200 properties in 28 states – some new, some redeveloped. It primarily earns 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 October 2018, the dividend is $2.28 for a yield of 5.39%.
As its name implies, Stag Industrial (STAG) invests in industrial-use properties, most of them distribution centers or warehouses with some light manufacturing facilities thrown in. It has 370 properties in 37 states. Its buildings are leased to single tenants, so it doesn't have to contend with constant turnover, as multi-tenant properties (shopping centers, office parks) often do. It claims a 70% tenant retention rate, and the average lease runs nearly five years. The lease terms are carefully staggered.
As of October 2018, the company pays a $1.42 dividend, and yield is 5.54%.