3 Attractive REITs With Dividends of 5% or More

By: , Contributor

Published on: Dec 14, 2019

These three high-paying REITs are worth a closer look.

Real estate investment trusts, or REITs, are known for their high dividend yields. As of late-November 2019, the weighted average dividend yield among equity REITs is about 3.4%, as compared with about 1.9% from the average S&P 500 company.

Even so, there are some REITs that pay significantly more. Three great examples are EPR Properties (NYSE: EPR), Iron Mountain (NYSE: IRM), and Taubman Centers (NYSE: TCO), all of which yield over 5% and could be worth a closer look right now.

A portfolio of fun properties

If I were to describe EPR Properties' investment strategy in one word, it would be "fun." The bulk of the company's portfolio is made up of experiential properties -- think megaplex movie theaters, waterparks, ski resorts, and golf entertainment centers (TopGolf is a major tenant).

The preferences of Americans are shifting, especially with the massive millennial generation. We're becoming less concerned with owning things and are more concerned with experiencing as much as possible. And EPR's properties are there to sell experiences. Since 1990, the percentage of total U.S. consumption that consists of leisure spending has steadily risen from about 7% to nearly 9%. EPR estimates that its current addressable market is over $100 billion in size, and this is likely to grow in the years ahead.

It's worth mentioning that not all of EPR's properties are entertainment or recreation venues. About one-tenth of the portfolio is education properties -- specifically private schools and early childhood centers (EPR recently exited the charter school business). This adds a nice component of diversification to the portfolio, but the company has made it clear that it plans to focus on its core experiential property strategy going forward.

Since its 1997 IPO, EPR Properties has delivered a roughly 1,900% total return for investors -- more than triple the overall REIT average. The combination of a 6.3% dividend yield and the future growth potential of EPR's target business types could continue the market-beating performance for years to come.

A market leader with a path to long-term growth

When it comes to records security, there's Iron Mountain and everyone else. With 700 million cubic feet of physical records stored and 1,450 facilities around the world, Iron Mountain is the dominant market leader in its core business of records storage. Approximately 95% of the Fortune 1,000 are Iron Mountain customers, and the company serves a total of more than 225,000 customers across six continents.

One major concern, and it's certainly a legitimate one, is that the need for physical records storage is expected to decline (or at least not to grow) over time. However, the company has some growth avenues, such as data protection and digital records storage.

I'm particularly excited about the company's data center business, which currently makes up just 6% of Iron Mountain's revenue, but this has been steadily expanding in recent years. The company wants data centers to be 10% of its EBITDA by 2020, and this could be just a starting point. Iron Mountain has a unique opportunity to leverage its trusted brand name to a network of data centers around the world (after all, can you even name another brand-name data center company?)

The most productive mall retail space

Retail businesses are generally not doing well, as e-commerce disruption has sent shockwaves throughout the entire industry. However, not all retail businesses are the same. Top-quality mall properties that are not just stores but are destinations are doing quite well.

That's why 8%-yielding Taubman Centers may deserve a spot on your watch list. Established in 1950, it is one of the longest-running real estate companies and has grown into a vast portfolio of mall properties in some of the most valuable retail locations in the world. Just to name a few, the Beverly Center in Los Angeles, Dolphin Mall in Miami, and The Mall at Millenia in Orlando are some of the company's best-known assets.

Taubman Centers has the most productive mall retail space of all publicly-traded U.S. mall REITs. Its average tenant generates $919 in sales per square foot -- that's 23% and 39% higher than fellow top-tier mall REITs Macerich and Simon Property Group, respectively. This gives it a major competitive advantage when it comes to attracting and retaining tenants, and also gives Taubman the pricing power to charge higher rent than its rivals.

Not low-risk stocks

To be clear, I wouldn't call any of these three stocks low-risk. EPR's tenant businesses are mainly dependent on discretionary spending, so they could suffer more than most in recessions. Iron Mountain has a big opportunity, but there's a lot of execution risk along the way. And Taubman isn't immune to e-commerce headwinds -- it's just in a better position than most mall operators.

The point is that while I think investors will be fine with any of these as long-term investments, they are likely to experience significant short-term volatility along the way. Invest accordingly.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.