With May's inflation reading of 8.6% coming in hotter than analysts were expecting, the Federal Reserve has already demonstrated that it will be even more aggressive with interest rate hikes in the near future. This has pushed the S&P 500 index back into a bear market, down 21% from its 52-week high.
Even with the recent market turmoil, I'm not worried. That's because I focus on increasing my annual dividend income as much as my net worth. And the beaten-down market has created many buying opportunities.
Here are two high-yielding real estate investment trusts (REITs) that are in my portfolio and look like great buys for investors seeking steadily growing passive income.
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1. Medical Properties Trust
If investors are concerned about a recession, hospital REIT Medical Properties Trust (MPW -8.68%) is a good pick. This is because the company's portfolio includes 440 facilities in the U.S. and nine other countries, valued at over $22 billion.
Like all organizations, hospitals need capital to both survive and thrive. And they turn to Medical Properties Trust to tap into the equity from the real estate. Selling their properties to the REIT allows them access to the funds necessary to repay debt and expand to reach more patients.
In exchange for providing its tenants with vital capital infusions, Medical Properties Trust's lease terms are for 10 to 20 years. And tenants cover all property expenses and pay a base rent to the REIT each month. Since hospitals rarely shut, this creates steady rent revenue for Medical Properties Trust each month.
Given that 99% of its leases enjoy inflation-based or annual fixed rent increases, Medical Properties Trust's rent revenue consistently grows. And this is before even considering its billions of dollars of property acquisitions that are completed each year -- $3.9 billion in 2021 alone. That explains how Medical Properties Trust's adjusted funds from operations (AFFO) per share surged 13.2% in 2021 to $1.37.
With a dividend payout ratio of 80%, the REIT's eye-popping 7.8% dividend yield appears to be safe. This also gives Medical Properties Trust enough capital to keep acquiring properties in the future. And because the company's addressable market is over $1 trillion of hospital real estate, it should have little difficulty finding quality properties to acquire in the years to come.
And at a trailing-12-month price-to-AFFO-per share ratio of 10.6, Medical Properties Trust looks like a compelling buy for income investors.
2. Realty Income
With a portfolio of nearly 11,300 properties spanning the U.S., Puerto Rico, the U.K., and Spain, Realty Income (O 1.94%) is a dominant, diversified REIT.
The company's top five industry concentrations of grocery stores, convenience stores, dollar stores, quick-service restaurants, and drugstores make up just 40% of its annualized base rent (ABR). And the top five markets of Texas, the U.K., California, Florida, and Illinois comprise 36.1% of its ABR.
Much like Medical Properties Trust, Realty Income provides its tenants with access to capital in exchange for ownership of their real estate. The REIT also benefits from a weighted average lease term of 8.9 years, which leads to strong rent revenue visibility. And the company also has a catalyst to drive rent revenue higher right off the bat: annual lease escalators that are either linked to inflation or fixed in nature.
All of these characteristics together are how Realty Income's AFFO-per-share ratio has grown at a 5.1% annual rate since 1995. For context, this is much higher than the industry average of 4%.
The best part is that Realty Income's growth should continue for many more years. This is because the company has an estimated $12 trillion commercial real estate market to search for potential property acquisitions. And with a dividend payout ratio set to be in the mid-70% range in 2022, Realty Income has the capital to expand its portfolio. This should enable mid-single-digit annual dividend growth in the years ahead, which is enticing, factoring in the stock's 4.7% dividend yield.
Realty Income's forward price-to-AFFO-per-share of 16.5 seems to offer investors a decent entry point for the long haul.
