I love buying dividend stocks to collect passive income. One of my favorite places to hunt for an attractive income stream is the real estate investment trust (REIT) sector.
To maintain their tax-advantaged status, these entities need to pay out 90% of their taxable income to investors via dividends. Because of that, REITs typically offer above-average dividend yields. Even better, most REITs tend to grow their payouts each year as their rental income rises.
My top three dividend stocks in the REIT sector right now are EPR Properties (EPR 0.31%), Medical Properties Trust (MPW 0.56%), and W.P Carey (WPC -1.97%). All three companies offer dividend yields well above the S&P 500 (1.3%) and the REIT sector average (3.1%). With solid growth prospects, these REITs are great options for dividend-focused investors.
A big-time dividend
EPR Properties Trust is a specialty REIT focused on experiential real estate like movie theaters, attractions, and other entertainment venues. The company currently pays a monthly dividend that yields 6.3%.
The REIT faced some headwinds during the early days of the pandemic as many of its tenants couldn't afford to pay rent due to government-mandated shutdowns and other restrictions. That forced EPR to suspend its dividend to shore up its financial situation.
However, market conditions have improved significantly in recent months. The REIT collected 97% of the rent it billed during the fourth quarter and received some more deferred rent and interest payments. Meanwhile, it's in its best financial shape in years. The REIT now has an investment-grade credit rating and lots of liquidity, including $288.8 million of cash and no borrowings on its $1 billion credit facility.
That's giving it the financial flexibility to target $500 million to $700 million of acquisitions this year. These deals will grow the company's funds from operations, which at an estimated $4.30 to $4.50 per share this year, is plenty to cover the company's $3.30 per-share annual-dividend outlay. It has already increased its recently reinstated payout by 10% and could continue growing it in the future as it expands its portfolio.
A healthy payout
Medical Properties Trust is a healthcare REIT focused on owning hospitals. It currently pays a 5.6% yielding dividend.
The REIT has done an excellent job growing that payout over the years. It has given its investors a raise for nine straight years, expanding its dividend by a 3.8% compound annual rate since the end of 2018.
Medical Properties Trust should be able to continue growing its dividend in the future. The REIT has an enormous opportunity to continue acquiring hospital real estate.
It estimates that there are $500 billion to $700 billion of operator-owned hospitals in the U.S. and another $260 billion in behavioral healthcare properties, a market it entered last year. On top of that, there's a significant international opportunity in both markets. With a strong liquidity position, Medical Properties Trust has the financial flexibility to continue growing its portfolio and dividend in the coming years.
A long history of giving investors a raise
W.P. Carey is a diversified REIT. It owns a portfolio of operationally critical real estate in the industrial, warehouse, office, retail, and self-storage sectors. The REIT also pays an attractive dividend that currently yields 5.2%.
W.P. Carey has increased its dividend every year since its initial public offering in 1998. It has benefited from steadily rising rental rates and its ability to acquire more cash-flowing commercial real estate.
The company invested a record $1.7 billion in expanding its portfolio last year. It expects to make between $1.5 billion and $2 billion of investments this year. On top of that, it's acquiring a real estate fund it currently manages in a $2.7 billion deal. These investments will supply W.P. Carey with more income to support and grow its dividend in the coming years.
A great place to earn dividend income
REITs have historically been excellent investments due partly to their ability to pay steadily rising dividends. While many solid dividend-paying REITs exist, EPR Properties, Medical Properties Trust, and W.P. Carey stand out for their above-average yields and attractive growth prospects. Their ability to pay a lucrative and growing income stream makes them great dividend stocks to buy right now.