Real estate investment trusts (REITs) Innovative Industrial Properties (IIPR 0.19%) and Medical Properties Trust (MPW -7.85%) currently offer investors big-time dividends. Innovative Industrial Properties' payout yields 5.1%, while Medical Properties Trust's dividend is 6.7%. Both are well above the S&P 500's dividend yield (1.4%) and the REIT sector's 3% average.
However, before income-focused investors buy one of these high-yielding REITs, they should consider whether they're an ideal fit for their portfolio and risk tolerance. Here's a look at which REIT might be better for certain investors.
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Far superior returns with room to grow
Liz Brumer-Smith (Innovative Industrial Properties): It's hard to compare the performance of Innovative Industrial Properties (IIP) to other REITs, because it's performed much more like a growth stock than a steady dividend-paying REIT. Since going public in 2016, the share price has increased 606%, outperforming Medical Properties Trust by over three times and providing a total annualized return of 46% for investors. Its strategic role in the budding marijuana industry is a key reason it's experienced so much success. And despite growing concern over the company's growth potential if marijuana were to be legalized in the U.S., there's reason to believe there's room left to grow.
Innovative Industrial Properties purchases real estate from existing operators in the medical marijuana industry, leasing it back to them over long-term net leases in a special transaction called a sale leaseback. This business model allows it to generate extremely consistent revenues over the long term with well-established tenants.
And since the marijuana industry isn't legalized on a federal level, operators' access to traditional lending avenues like a bank loan or mortgage is limited, meaning IIP has a lot of momentum supporting its growth. Today it has 110 properties in its portfolio, and it's actively expanding through new sale leaseback partnerships and new developments.
General market volatility, coupled with the growing concern over the legalization of marijuana affecting its business model and, most recently, a class action lawsuit against IIP, its share price has taken an absolute beating this year. IIP is down 48% year to date, but that also means it's trading at a steal of a price of around 20 times its funds from operations (FFO). It's raised its dividend 13 times over the last six years, and with its dividend return paying just above 4.5%, it's a solid buy for both reliable dividend income and long-term growth potential.
A consistent grower
Matt DiLallo (Medical Properties Trust): I started buying shares of Medical Properties Trust almost 15 years ago and have steadily added to my position over time. Overall, I'm pretty pleased with the hospital-focused healthcare REIT's performance. It has delivered a steadily rising dividend -- the REIT notched its ninth consecutive annual dividend increase this year -- and some decent share price appreciation. While it hasn't been a big winner, the REIT supplies me with an attractive and growing passive income stream, which is what I'm seeking from the position.
The REIT has delivered that consistent dividend growth by steadily acquiring additional hospital real estate. Medical Properties Trust has purchased $12 billion of hospital properties since 2019 alone. It has grown into the second-largest non-governmental hospital owner globally, with over $20 billion of assets.
Medical Properties Trust has ample room to continue growing. The U.S. hospital market alone consists of more than 6,000 facilities valued at over $1 trillion. In addition, there's ample opportunity to continue acquiring hospital real estate overseas and tap into the fast-growing behavioral healthcare market, which it entered last year.
The REIT expects to invest another $1 billion to $3 billion in acquiring hospital real estate this year. It intends to finance these deals in non-dilutive ways, such as through joint ventures. Because of that, Medical Properties Trust expects to continue growing its cash flow per share. That should enable the REIT to maintain its pace of steady dividend increases.
Steady growth versus higher upside potential
Even though Innovative Industrial Properties and Medical Properties Trust both offer high dividend yields, they likely appeal to different types of investors. Medical Properties Trust is a better REIT for those seeking steadier returns and dividend growth. Meanwhile, Innovative Industrial Properties is a better REIT for more risk-tolerant investors desiring a higher total return potential.
