The dividend yield on the S&P 500 is near a 20-year low of around 1.25%. Because of that, it's getting harder for investors to find compelling income stocks.
However, one place where they can still find more attractive yields is the real estate investment trust (REIT) sector. The average REIT currently yields around 3%, with some offering even bigger dividends. Three attractive REITs offering above-average payouts are Crown Castle International (CCI +1.32%), Realty Income (O +0.71%), and Medical Properties Trust (MPW +0.66%).
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Supporting a massive upgrade cycle
Crown Castle is an infrastructure REIT focused on communications assets like cell towers, small cells, and fiber optic networks in the U.S. Mobile carriers lease space on its infrastructure to support their mobile networks. Those leases generate steady cash flow to support Crown Castle's 3.2%-yielding dividend.
The company's assets are vital to supporting the country's current 4G network and the upcoming upgrade to 5G. Crown Castle sees a decade-long investment cycle in 5G as mobile carriers roll out their new networks. Because of that, the company estimates it can grow its dividend at a 7% to 8% annual rate over the long term. Due to stronger-than-expected demand for its infrastructure, it has exceeded that target over the last two years. In 2021, it increased its payout by 11%. Crown Castle's combination of growth and yield makes it an excellent REIT to buy for the long haul.
On a shopping spree
Retail REIT Realty Income is having a huge year. It acquired $3.78 billion of properties through the end of the third quarter, already exceeding its initial 2021 target of $3.25 billion. In addition, the company closed its merger with VEREIT while subsequently spinning off their combined office assets. These deals have enhanced its portfolio and ability to grow the dividend.
Realty Income recently announced a 5.1% dividend increase, the 113th since its public listing in 1994. That helped boost its dividend yield up to 4.3%.
The company should be able to continue increasing its monthly dividend. Realty Income expects to acquire at least $5 billion of real estate this year. Meanwhile, it has a top-notch financial profile to continue acquiring properties in the future.
Healthy growth ahead
Medical Properties Trust currently yields 5.2%. The hospital-focused healthcare REIT has a long history of increasing its dividend. It has given its investors a raise in each of the last eight years.
That upward trend seems likely to continue in the future. The REIT has grown its funds from operations (FFO) per share at a double-digit rate through the first nine months, driven by a healthy dose of acquisitions.
While it's already the second-largest non-government owner of hospitals worldwide, at $21.4 billion of assets, it only owns a tiny slice of the global hospital real estate market. The company estimates that there are nearly $1 trillion of operator-owned hospitals in the U.S. alone. In addition, it sees a $260 billion opportunity for behavioral healthcare properties, an asset class it expanded into this year. Meanwhile, the global market for these property types is even larger. Those massive addressable markets suggest that Medical Properties Trust should have many opportunities to expand its portfolio and support continued dividend growth.
Compelling combinations of growth and income
Crown Castle, Realty Income, and Medical Properties Trust stand out for their above-average dividends. However, those high yields are only part of the overall attraction. All three have excellent dividend growth track records, which seem likely to continue for the foreseeable future. That growing income stream makes these REITs look like compelling buys these days.
