Considering the current market's volatility and overall downturn, now seems like a good time to take a look at some investments offering above-market cash flow while also offering potential outsized share price gains when the market finally gets bullish.
If you've got $3,000 available that isn't needed to pay bills, reduce debt, or build up an emergency fund, there are some stocks worth a closer look that offer outsized cash and outsized potential. All three of these stocks are real estate investment trusts (REITs), required by tax law to pay at least 90% of their taxable income as dividends each year to shareholders.
Two of them -- Medical Properties Trust (MPW -1.10%) and Gladstone Commercial (GOOD 0.68%) -- are equity REITs that directly own income-producing real estate. The third -- Blackstone Mortgage Trust (BXMT 1.47%) -- is a mortgage REIT (mREIT), which originates or invests in mortgages or mortgage-backed securities. mREITs typically pay higher dividends than equity REITs but also are considered far more vulnerable to interest rate risk.
About $300 a year instead of $55 from the S&P 500
Based on current yields and share prices for Blackstone Mortgage Trust and Medical Properties Trust, if you were to buy $1,000 of each of these stocks, you would see annualized income of $105.30 and $102.30, respectively, at today's share prices. They pay quarterly. A $1,000 investment in Gladstone Commercial would get you $94.10 per annum, and it pays monthly.
Below is a chart that shows the dividend yield of each of these stocks over the past five years. Keep in mind that stocks in the S&P 500 average a yield of about 1.82%. That'd be good for about $55 a year for that $3,000 investment.
MPW Dividend Yield data by YCharts.
Remember, yield is a function of share price and dividend payout. Yields tend to rise when share prices far and vice versa. That's why you see that big spike during the market collapse in the early days of the COVID-19 pandemic when markets crashed. You can also see another spike occurring now, in today's bear market. (But even at their "normal" share prices, these are high-yielding stocks.)
The chart below shows just how much share prices for Blackstone Mortgage Trust, Medical Properties Trust, and Gladstone Commercial have fallen since the beginning of the year compared with the greater market.
So, why buy any or all of these REITs?
I own shares in all three of these stocks and would not hesitate to add to my stake in each of them. That's for the simple reason that, for my money, each of them fits the basic principle of buying great companies and holding on. Buying more now, meanwhile, is another of the main points of The Motley Fool Investing Philosophy: taking advantage of inevitable market downturns before the subsequent recovery.
Each has its own story. For instance, Gladstone Commercial has a portfolio of 136 office and industrial properties in 27 states and is in the process of reducing its share of office in favor of industrial, which the company considers a much more promising sector going forward because of return-to-the-office concerns and the growth of on-shoring and general resilience of the logistics sector going forward.
Medical Properties Trust, meanwhile, owns about 440 hospitals and clinics in 10 countries, primarily in the United States, and is one of the largest private owners of such properties in the world. Concerns about some of its largest tenants have helped punish MPT's stock, but the company has demonstrated the financial wherewithal and intent to help clients through some tough spots as they keep such necessity-based operations going. The company also plans to keep building its portfolio, including with up to $3 billion in new acquisitions this year.
Then there's Blackstone Mortgage Trust. While most mREITs deal in residential mortgages, this trust originates, buys, and sells first-lien commercial mortgages. And while rising interest rates and inflation can easily wreak havoc on mREITs because of the leveraged nature of their business, Blackstone Mortgage Trust is somewhat buffered by the prevalence of adjustable-rate loans in its portfolio. It also doesn't hurt that it's part of Blackstone and can draw on the in-house resources and expertise of one of the world's largest investment managers.
Long-term potential is there
Lastly, let's look at the total return for these three REITs.
BXMT Total Return Level data by YCharts.
As you can see, each of these REITs has a better 10-year total return -- which combines dividend payouts and share price performance -- than the benchmark Vanguard Real Estate ETF, which holds about 160 different REITs.
Gladstone Commercial and Medical Properties Trust also both regularly raise their dividends while Blackstone Mortgage Trust has had the same payout since 2015. But that's not necessarily bad when you're talking about the kind of stock that, to many investors, is competing with bonds and even guaranteed savings instruments as much as equity plays. The company has consistently provided much more income than them.
No guarantees but history would be on your side
Nothing is guaranteed with stocks, of course, but splitting your $3,000 equally among these three offers potential, especially as the overall market recovers and moves back into a bullish attitude. You can enjoy a strong flow of passive income while waiting for the share prices to recover.
