Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies, which show that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks.
The highest dividend yields can be very tantalizing. As long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since dividend yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business, and driven down its stock price.
Most real estate companies are organized as real estate investment trusts, or REITs. They do this so that they can get around the double taxation issue that most investors face. REITs don't pay taxes as long as they distribute at least 90% of their income as dividends. The investor holding shares of the REIT then has to pay taxes on those dividends as though they are income. This differs from most dividends, which are taxed at a lower rate.
Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.
A few months ago, I ran a screen for the highest-yielding REITs, and it got such a good reception that I'm doing it again this quarter. This time, I'm only considering REITs with a market cap greater than $300 million.
Here are the top 25 highest-yielding REITs the screen produced:
|
Company Name |
Market Cap (millions) |
Dividend Yield |
|
|---|---|---|---|
|
1 |
American Capital Agency |
$6,478 | 19.4% |
|
2 |
Chimera Investment |
$2,763 | 19.3% |
|
3 |
ARMOUR Residential REIT |
$602 | 18.6% |
|
4 |
Resource Capital |
$432 | 18.0% |
|
5 |
Invesco Mortgage Capital |
$1,697 | 17.7% |
|
6 |
Two Harbors Investment | $1,309 | 17.2% |
|
7 |
CYS Investments | $1,103 | 15.0% |
|
8 |
Hatteras Financial | $2,044 | 15.0% |
|
9 |
Annaly Capital Management | $15,638 | 14.9% |
|
10 |
MFA Financial | $2,433 | 14.6% |
|
11 |
Anworth Mortgage Asset | $870 | 14.2% |
|
12 |
Capstead Mortgage | $1,062 | 14.1% |
|
13 |
Newcastle Investment | $483 | 13.1% |
|
14 |
Crexus Investment | $752 | 12.2% |
|
15 |
Dynex Capital | $376 | 12.0% |
|
16 |
CommonWealth REIT | $1,399 | 12.0% |
|
17 |
PennyMac Mortgage Investment Trust | $468 | 11.9% |
|
18 |
Sabra Health Care REIT | $403 | 11.7% |
|
19 |
NorthStar Realty Finance | $432 | 11.1% |
|
20 |
Starwood Property Trust | $1,736 | 9.5% |
|
21 |
Redwood Trust | $851 | 9.3% |
|
22 |
Colony Financial | $497 | 8.6% |
|
23 |
Omega Healthcare Investors | $1,941 | 8.5% |
|
24 |
Medical Properties Trust | $1,042 | 8.5% |
|
25 |
Hospitality Properties Trust | $2,745 | 8.1% |
Source: S&P Capital IQ.
These stocks are a good place to start your research, but they're not formal recommendations. Remember, their seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the dividends are.
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