What kinds of stocks come to mind when you think about high dividend yields? For many investors, the answers would include huge drugmakers and large energy companies. And quite a few of those types of stocks do offer tremendous dividend yields.
But some smaller companies also provide mouth-watering dividends. These under-the-radar companies usually don't get as much attention from investors. Here are three great high-yield dividend stocks you might not have heard of but shouldn't overlook.
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1. Innovative Industrial Properties
Innovative Industrial Properties (IIPR -0.82%) is a real estate investment trust (REIT) with a dividend yield north of 4.9%. It probably isn't surprising to have a REIT on our list, considering REITs must pay out at least 90% of taxable income as dividends, which often leads to attractive yields. In fact, all three of the stocks on our list are REITs. What might be a little surprising, though, is IIP's business: buying and leasing out medical cannabis properties.
The company's business is definitely booming. IIP's revenue more than tripled year over year in the third quarter of 2019. Its earnings skyrocketed 314% over the prior-year period result. And in 2019, a tumultuous year for many cannabis stocks, IIP's shares jumped 67%.
IIP's growth strategy is simple. The company uses its increasing amount of capital to buy more medical properties that it then leases out under long-term lease agreements. In many cases, IIP buys properties from cannabis operators and leases the properties back to the customers in deals where both parties win.
There's no shortage of opportunities for IIP to grow. The company currently owns 47 properties in 15 states. The medical cannabis markets in several of these states are only in their early stages. So far, 33 states have legalized medical cannabis with more likely on the way, giving IIP more markets into which it could expand.
2. Medical Properties Trust
You probably won't have a hard time guessing what Medical Properties Trust (MPW -0.22%) does. The company's name provides a pretty good hint that its business is owning and leasing medical facilities, primarily acute-care hospitals. MPT's dividend yield currently stands at 4.64%.
The stock enjoyed a nice run in 2019, jumping more than 31%. This performance was driven in large part by Medical Properties Trust's acquisitions. The company's assets increased significantly as MPT acquired and leased around $3.7 billion of hospital real estate.
Most of the hospitals Medical Properties Trust owns are in the United States. However, the company has also expanded into Germany and the United Kingdom and is now investing in Australia and Switzerland.
CEO Edward Aldag said in the company's Q3 conference call in October that MPT's "pipeline remains robust, with more than $5 billion in potential transactions that we are actively working." This could bode well for healthcare REIT's prospects of continuing to deliver solid growth and attractive dividends to investors.
3. Omega Healthcare Investors
Keeping the trend going, the third great high-yield dividend stock on the list is also a healthcare REIT. Omega Healthcare Investors (OHI 0.72%) focuses on skilled nursing facility (SNF) properties. The company's dividend yields more than 6%.
The SNF market has its challenges. SNF operators often find it difficult to eke out profits with relatively small annual reimbursement increases from Medicare and Medicaid. And there's always the possibility that federal and state programs will make changes that make life even harder for SNFs.
However, Omega Health Investors' business model doesn't demand that its tenants be highly profitable. The company only needs its SNF customers to be able to make their rent payments.
Omega Health Investors' 910 properties are also spread out across 39 U.S. states and the U.K. and across 73 third-party operators. This reduces the risk that the REIT will be pulled down too much if one tenant encounters financial difficulties or one state drastically changes its Medicaid program.
Best pick
Omega Health Investors has the highest dividend yield, but I think the best pick of these three is instead Innovative Industrial Properties. My view is that IIP is in the best position to deliver both strong dividends and tremendous growth over the next several years. That's a combination that's hard to beat.
