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3 High-Yield REITs To Buy in January

By Matthew DiLallo – Jan 4, 2022 at 4:01AM

Key Points

  • Realty Income's high-yield dividend has steadily headed higher.
  • EPR Properties recently reinstated its divided after pressing pause during the pandemic.
  • Medical Properties Trust's dividend is thriving during the pandemic.

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These real estate investment trusts look like great buys to start the new year.

Real estate investment trusts (REITs) can be great options for income-seeking investors. They must pay out 90% of their taxable income via dividends to comply with IRS regulations. Because of that, they often offer above-average dividend yields. For example, the average REIT currently yields around 3%, more than double that of the S&P 500

Some REITs offer even higher yields. Three high-yield REITs that stand out as top buys this January are Realty Income (O 2.99%)EPR Properties (EPR 2.50%), and Medical Properties Trust (MPW 3.58%).

A person holding a magnifying glass looking at a row of miniature buildings next to a set of rising coins.

Image source: Getty Images.

A dividend growth juggernaut

Realty Income is coming off a huge year. The retail REIT was on track to close $6 billion of property acquisitions in 2021. The company also completed its transformational merger with VEREIT and the subsequent spin-off of their combined office properties to create Orion Office REIT. These deals have the REIT on pace to grow its adjusted funds from operations (AFFO) per share by 9.2% in 2022. 

That will give Realty Income even more cash flow to keep growing its dividend. It delivered its 114th dividend increase last month and has grown its payout by 5.3% over the past year. That has pushed the dividend yield above 4.1%. 

Realty Income should have no problem growing its already high-yielding dividend in 2022. Its dividend payout ratio was a conservative 76.7% in the third quarter. In addition, it has one of the strongest balance sheets in the REIT sector. Because of that, it has ample financial flexibility to continue growing its portfolio, cash flow, and dividend in 2022 and beyond. 

Ready to cash in on the recovery

EPR Properties is a specialty REIT focused on experiential properties like movie theaters and attractions. While the pandemic hit these properties hard, demand for experiences has started recovering in the past year. For example, the recent Spider-Man movie had the second-highest North American box office opening weekend in history. Because of the recovery in experiences, EPR's tenants have the cash to pay rent, putting its recently reinstated 6.3%-yielding dividend on a firmer foundation. 

The REIT spent much of the pandemic making sure it could stay afloat by focusing on shoring up its financial situation. Because of that, it now has an investment-grade credit rating (increasing its access to funding) and lots of liquidity (cash and available credit). That's giving it the financial flexibility to expand its portfolio. The company aims to increase its exposure to non-theater experiences like eat-and-play venues, gaming facilities, and other attractions to take advantage of what it expects will be a boom in demand for experiences following two years of a pandemic. Those deals could enable ERP to increase its already big-time dividend.   

Another year of healthy growth

Medical Properties Trust currently yields 4.8%. The hospital-focused healthcare REIT has thrived during the pandemic. It hasn't had any issues collecting rent because of how vital its properties have been in fighting the pandemic. Meanwhile, it has been able to take advantage of opportunities to expand its portfolio. It purchased more than $3.6 billion of hospital properties in 2021. 

Those deals have helped drive double-digit AFFO per-share growth in 2021, easily supporting its ability to increase its dividend by another 4%. That was its eighth consecutive annual dividend increase. Meanwhile, it formed a joint venture to strengthen its balance sheet, giving it even more financial flexibility to continue acquiring hospitals. Because of that, the company should be able to continue growing its portfolio, AFFO, and dividend in 2022 and beyond. 

Great high-yield REITs to ring in the new year

Realty Income, EPR Properties, and Medical Properties Trust offer some of the most attractive dividends in the REIT sector. However, their above-average yields are only part of the appeal. All three have the financial strength to continue expanding their real estate portfolios, which should support higher dividends in 2022. That makes them great REITs to buy this January.

Matthew DiLallo owns EPR Properties and Medical Properties Trust. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.

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