Real estate investment trusts (REITs) have gotten battered over the past year due to surging interest rates. The average REIT produced a negative total return of 25% last year and is barely positive in 2023. Because of that sell-off, most REITs offer higher dividend yields these days. The sector's average is about 4.5%, surpassing the S&P 500 (1.6%). 

Many REITs offer even higher dividend yields, making them attractive buys for income-seeking investors. Healthpeak Properties (DOC -0.14%) and W. P. Carey (WPC -0.71%) stand out as high-yielding REITs investors should buy without hesitation.

However, not all high-yielding REITs are worth buying. Office Properties Income Trust (OPI 0.41%) is one that investors should avoid like the plague.

A healthy dividend

Healthpeak Properties currently offers a 5.6% dividend yield. That big-time payout is on a healthy foundation. The healthcare REIT has a healthy dividend payout ratio of less than 70%. Meanwhile, the REIT has a strong investment-grade balance sheet. Healthpeak has low leverage and minimal debt maturing until 2025. 

The REIT has lots of financial flexibility to pay dividends while investing in expanding its portfolio. It can invest money to develop new properties, expand existing locations, redevelop sites, and make acquisitions. Healthpeak Properties also has embedded growth drivers from lease rate escalation clauses across its medical office portfolio, the ability to capture much higher market rents as life science leases expire, and improving occupancy and margins within its continuing-care retirement communities (CCRC) portfolio.

Analysts believe these drivers will enable Healthpeak to grow its dividend in the coming years. The analysts' consensus is that the healthcare REIT will increase its payout by about 9% through 2025. That will add to its already attractive income stream. 

A steady grower

W. P. Carey's dividend yields 5.9%. That high-yielding payout is also on a firm foundation. It has a reasonable dividend payout ratio at less than 80% of its adjusted FFO and a strong investment-grade balance sheet. 

That gives the diversified REIT the financial flexibility to continue acquiring income-producing real estate. The company recently bought a portfolio of pharmaceutical R&D and manufacturing campuses in Canada for nearly $470 million. W. P. Carey expects to purchase between $1.75 billion and $2.25 billion of income-producing properties this year. 

W. P. Carey's other growth driver is rising rents. The majority of its leases have rental rate escalation clauses tied to inflation. With inflation running hot, its rents are growing more rapidly these days.

That combination of rising rental rates and acquisitions should enable W. P. Carey to continue increasing its dividend. The REIT has given investors a raise each year since its initial public offering in 1998.

Even the reset rate is a risk

Office REIT Office Properties Income Trust recently agreed to merge with healthcare REIT Diversified Healthcare Trust (DHC 0.96%) and form a new diversified REIT named Diversified Properties Trust. One aspect of that deal is that the REIT will reset its dividend rate to $0.25 per share each quarter, more than 50% below the prior level. That still gives it a dividend yield of more than 13%.

While the company believes that the reset rate is more sustainable, there's a significant risk the REIT could reduce its payout again. That's because both companies are facing serious challenges and have material weaknesses. Office Properties Income has significant upcoming lease expirations that could affect cash flow. Meanwhile, Diversified Healthcare has high leverage and significant upcoming debt maturities. These issues could force the company to cut the dividend again until the office market stabilizes, and it addresses the balance sheet issue it will inherit by merging with Diversified Healthcare. 

Make sure the high yield is sustainable

High-yielding dividends are alluring for income-seeking investors. However, Office Income Properties has already proven that they're not always sustainable. Because of that, investors should continue avoiding that REIT like the plague. Instead, they should consider buying Healthpeak Properties and W. P. Carey for income. Both REITs offer high-yielding dividends that they should sustain and grow in the future. That makes them great to buy hand over fist to generate a growing dividend income stream.