With the stock market continuing the volatility that pushed it into bear market territory, many investors are looking for alternative income streams. It's not hard to beat the average 1.7% yield seen among S&P 500 stocks by just investing in the safest paying dividend stocks. With inflation remaining elevated around 8%, the ultra-high dividend yields offered by many real estate stocks offer right now are extra alluring.
Since real estate investment trusts (REITs) are required to pay 90% of taxable income in the form of dividends, it's not uncommon to find REITs with dividend yields that are well above what can be found with S&P 500 stocks. However, not all high-yielding real estate stocks are worthwhile buys. In fact, some can be downright bad news.
To help you sift through the choices, let's talk about two ultra-high-yield stocks worthy of buying hand over fist and one to avoid like the plague.
1. Blackstone: A super secure 5.4% yield
Blackstone (BX -0.34%) is one of the largest asset management companies, operating some of the most successful private equity funds and REITs today. The company manages money for wealthy individuals, insurance companies, and private equity firms investing in real estate, private and public debt equities, life sciences, and other alternative assets. In exchange, the company earns a fee for its services.
In light of recent stock market volatility and high inflation, a growing number of wealthy individuals have flocked to alternative assets, helping the company grow its assets under management (AUM) by 30% since last year to a record $915 billion. Aside from its stellar growth, Blackstone Group boasts an A+ rating by both Fitch and S&P Global Ratings and its financial position is strong. It has an excess of $18 billion cash on hand and just over $9 billion in debt.
Unlike other real estate stocks, its dividend payouts fluctuate each quarter. A safe payout ratio is more important to the company than consistent dividend raises, so it keeps its dividend payout within a maintainable range each quarter based on performance. Historically its annualized yield averages around 5% to 7%. Today it's paying a 5.4% dividend yield.
A 5.4% yield may not technically qualify as an ultra-high-dividend yield, but at over three times the S&P 500 average, it's still an attractive high-yield stock for income investors. Add in the company's safety and stock price appreciation opportunities and it's clear to see why it's a real estate stock you'll want to buy hand over first.
2. Medical Properties Trust: This dividend passed its bill of health
Medical Properties Trust (MPW -0.22%) is a hospital-focused healthcare REIT. The company is the largest owner of hospitals in the world, leasing roughly 435 properties to 54 different hospital operators in 10 countries.
The stock has gone through a pretty steep sell-off, and it is down 53% this year alone. General market volatility impacted its pricing but investors have also grown increasingly concerned over rising interest rates impacting its ability to borrow more money and pay its current debt obligations, which is roughly $9.5 billion outstanding. To make matters worse, one of the company's tenants, Pipeline Health, filed for Chapter 11 bankruptcy protection in early October.
The company is taking strong measures to reduce its debt exposure and pad its cash savings, having sold 11 properties in the third quarter of 2022. The company used the proceeds of the sale to repay its short-term debt, which brought its ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) down from 6.3 to 5.8. The company has a potential three more sales positioned to finalize in early 2023.
Its third-quarter earnings were positive as well, beating estimates and motivating the company to increase its guidance for the full year 2022. Today's beaten-up share price pushed its dividend yield to a very juicy 10.3% while the company maintains a healthy payout ratio of 64%.
Investors shouldn't expect huge growth in the coming years as hospitals continue to recover from the labor challenges in today's marketplace and the continued economic and health fallout from the COVID-19 pandemic. However, it's still a reliable high-yielding dividend stock investors can load up on at today's great price.
3. Annaly Capital Management: Its 19.25% yield isn't worth the risk
Mortgage REITs are facing tremendous pressures right now in a high inflation and rising interest rate environment. Annaly Capital Management (NLY 0.59%) is a unique mortgage REIT as it doesn't originate loans for commercial or residential property. Rather, it purchases existing mortgages, primarily mortgage-backed securities (MBSs) that are backed by the federal government (think Fannie Mae or Freddie Mac loans).
Annaly Capital Management makes money from the spread between the interest it collects on the loans in its portfolio as well as the price difference between the loans it buys and sells. It also earns some revenue from its mortgage servicing arm. Rising interest rates impact Annaly's cost of borrowing, narrowing the profit margin on the interest it receives from the fixed-rate loans it collects on. Higher rates also mean less demand for new mortgages, something the company relies on to grow its portfolio holdings.
The company grew its portfolio slightly in the third quarter but the pressure from interest rates is definitely impacting its profitability at a net loss of $302 million. This was the company's first negative quarter in over a year. Its net interest spread, the profit it makes between its cost of borrowing and interest collected, dropped a whole percentage point in the third quarter, to a mere 1.09%.
Its recent 1-for-4 reverse-stock split bumped its dividend yield up to 19.25% as share prices tumbled further. While a 19% yield is surely alluring, it's not likely to stick around for long as the REIT will likely adjust the next dividend payout to reflect the new number of shares and the new share price. The challenging market today puts its dividend at risk for a cut in the near future. When it comes to ultra-high-yielding dividend stocks, there are far safer options out there that can offer attractive yields without the risk.
