3 Top Real Estate Stocks to Buy With Dividends Above 4%

Beth McCandry

The values ​​for residential buildings were on fire last year. According to the S&P CoreLogic Case-Shiller Index, house prices rose 11.2% in January, the largest annual gain since before the financial crisis.

There are a variety of factors that are driving prices up, in particular lack of supply, increasing upward movement due to strong economic activity after the pandemic, and predictions of moderate inflation.

Investors are increasingly turning to the hardest hit commercial real estate sector as property, plant and equipment such as land and buildings traditionally outperform in this economic environment.

While interest rates rise in anticipation of growth, it’s important to note that historically levels are still low and the 10-year return is only 1.7%. A high return remains difficult to achieve, and even junk bonds produce a return of less than 4.5%!

The combination of a 4% return with the prospect of asset growth makes REITs like CareTrust REIT (NYSE: CTRE), Stag Industrial (NYSE: STAG), and Realty Income (NYSE: O) top picks.

CareTrust REIT

CareTrust REIT is a healthcare-based real estate investment trust (REIT) that owns nearly 200 rented healthcare and senior living properties in 24 states. The REIT was a spin-off from the senior and care company Ensign Group, which remains the largest tenant.

In addition to the close relationship with its tenants, CareTrust has in-depth knowledge of all facets of this industry and one of the strongest records in the industry. These three factors were seen during the pandemic.

Despite the difficult environment for senior facilities during the pandemic, CareTrust was able to navigate virtually unscathed and collect 99.3% of the contractually agreed rents in 2020. This allowed CareTrust to maintain its payouts while other high-ranking REITs, namely Welltower (NYSE: WELL), had to cut dividends.

Not only did CareTrust hold on to its dividend, but the REIT was opportunistic during that period. CareTrust was heavily invested during the pandemic, acquiring $ 105.2 million in assets with an effective return of 8.9%.

This allowed the company to declare a quarterly dividend payout of $ 0.265 per share, up 6% year over year. CareTrust released an annual forecast for 2021 and expects normalized funds from operations (FFO) of $ 1.41 in the middle, indicating a conservative payout ratio of 75%.

With a market capitalization of $ 2.3 billion, CareTrust is the smallest of the three, but has decades of profits as America’s graying increases demand for retirement homes and skilled care facilities.

Deer industry

Stag Industrial is a paid-for industrial REIT with 492 buildings covering nearly 100 million square feet. Shares are up more than 70% over the past five years as long-term investors learn more about the company and its innovative approach to capital management, which includes monthly dividend payouts.

Since going public in 2011, Stag has been able to increase its dividend every year thanks to its strict capital allocation policy. The company knows how to manage risk through a diversified approach. Geographically, as of December 2020, Stag will be represented in 39 states.

Although the company is known as an e-commerce-focused REIT, it is the largest single tenant with 3.8% sales. Amazon (NASDAQ: AMZN) is the largest single tenant with sales of 3.8%. The top 20 tenants only account for 19.5% of total take-up.

After all, Stag Industrial is well diversified. Tenants in a number of industries and the largest – auto components – account for just 12.4% of total sales. The company’s strong risk management resulted in an occupancy rate of 97.2% in 2020. Stag’s stock currently offers a yield of 4.2%, which translates into an annual payout per share of $ 1.45.

Look for it to continue. Management estimates the FFO will easily support the payout with a forecast of $ 1.97 per share. Stag Industrial will benefit from the increased economic activity from the reopening of America and is the long-term driver of e-commerce growth.

Real estate income

Realty Income is the originally monthly paid REIT, which Stag Industrial is not allowed to surpass. Realty Income’s board of directors announced a quarterly dividend increase in March, the 110th since going public in 1994. The company has paid monthly dividends for 609 consecutive months, a period well beyond its time as a public company. On a share basis, the shares currently give a return of 4.3%.

The company’s track record enables him to work with strong tenants who have historically paid rent on time. The top five tenants – Walgreens (NASDAQ: WBA), 7-Eleven, Dollar General (NYSE: DG), FedEx (NYSE: FDX), and Dollar Tree (NASDAQ: DLTR) / Family Dollar (NYSE: DG) – accounted for nearly 22nd % of annualized contractual rental income.

In 2020, the pandemic led to a lower occupancy rate of the more than 6,500 commercial properties, especially in the retail property sector, but only to a minor extent (98.6% versus 97.9%) due to the strong partnerships with high-quality tenants.

Realty Income currently pays investors $ 2.82 per share per year, which is a manageable 81% of Adjusted FFO per share for the year. Investors can look forward to more quarterly raises and monthly payments from this dividend aristocrat.