The large attraction that traders must Annaly Capital (NYSE: NLY) is its big 13.2% dividend yield. That is a formidable quantity, however the dividend backing it has been reduce a number of instances over the previous decade. Should you purchase Annaly pondering you could stay off the revenue, you would possibly find yourself struggling a “pay reduce” if historical past is any information. It could be higher to take a decrease yield from a extra dependable actual property funding belief (REIT), comparable to Federal Realty (NYSE: FRT), Common Well being Realty Belief (NYSE: UHT), or NNN REIT (NYSE: NNN). Here is a fast take a look at every.
1. Federal Realty is the king of the REIT sector
Whereas Annaly stands out for its lofty yield, Federal Realty stands out for its spectacular dividend streak. It’s a Dividend King with greater than 5 a long time’ price of annual dividend will increase behind it, the longest such streak within the REIT sector. Nonetheless, Federal Realty is exclusive in different methods as nicely. Though its give attention to strip malls and mixed-use tasks is not uncommon, it solely owns round 100 properties. Most of its closest friends personal way more (many personal multiples of that determine). Federal Realty principally focuses on high quality over amount.
This isn’t a small difficulty, noting that Federal Realty operates in additional densely populated areas than its friends, and people areas have extra rich residents. Furthermore, with a small portfolio, the retail-focused REIT tends to pay further consideration to redevelopment efforts at its properties, making certain they’re on the prime finish of the choices the place they compete. On the finish of the day, Federal Realty properties are the sort the retailers need to be in, and shoppers need to store at. The one downside is that the shares are normally afforded a premium valuation. Nonetheless, the present 4.2% dividend yield is close to ranges seen in the course of the COVID-19 pandemic and the Nice Recession. It is likely to be price a search for traders who prize dividend consistency.
2. Common Well being Realty is a high-yield snail
Common Well being Realty owns precisely what its identify implies: healthcare property. The portfolio is pretty small, with simply 75 or so properties. It’s externally managed by Common Well being Providers (NYSE: UHS), which can also be one in every of its largest tenants. This relationship does create some potential points round company governance and belief, however that’s offset by the REIT’s 38 consecutive years of annual dividend will increase.
The large draw right here is the yield, which sits at roughly 6.8%. The issue is you could’t count on a lot in the best way of dividend development, given the common annualized improve of simply 1.4% over the previous decade. However should you care extra about present revenue than dividend development, that is likely to be simply superb by you, particularly contemplating that the yield is at the moment close to decade highs.
3. NNN builds relationships
Final up is NNN REIT, which was referred to as Nationwide Retail Properties. This REIT operates single-tenant retail properties and makes use of a web lease strategy. Internet leases require tenants to pay for many property-level prices, which helps to cut back the REIT’s bills and the danger related to issues like inflation. Though any single property with only one tenant is a excessive danger, unfold throughout a big portfolio, the web lease mannequin is pretty low danger. NNN REIT’s 3,500 or so places make it one of many largest within the sector.
The present dividend yield of 5.1% is close to the excessive finish of the yield vary over the previous decade. The dividend has been elevated annually for 34 years. However what actually units NNN REIT aside is that it really works arduous at fostering sturdy relationships with its tenants. To that finish, roughly 70% of its acquisitions are relationship-based, which means that the REIT is rising together with its tenants in a symbiotic relationship that clearly advantages traders who love dividends.
Look past the yield
It is easy for a dividend investor to get caught up in dividend yield figures. Nonetheless, there are lots of different components you will need to contemplate. For instance, Annaly’s excessive yield needs to be couched in the truth that it’s a serial dividend cutter. This is the reason most traders will probably be higher off taking a look at serial dividend increasers like Federal Realty, Common Well being Realty Belief, and NNN REIT.
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Reuben Gregg Brewer has positions in Federal Realty Funding Belief. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
Forget Annaly Capital: 3 REIT Stocks to Buy Instead was initially printed by The Motley Idiot
