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3 High-Dividend REITs to Buy Right Now

Dec 19, 2020 by Matthew DiLallo
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Real estate investment trusts (REITs) are tailor-made to pay high dividends. The IRS requires them to pay out 90% of their taxable income to investors. Because of that, most offer above-average dividend yields. At the moment, the average REIT yields 3.92%, well above the S&P 500's current average of 1.63%.

Many pay even higher dividends. Three of them that stand out as attractive buys right now are Community Healthcare Trust (NYSE: CHCT), STAG Industrial (NYSE: STAG), and National Retail Properties (NYSE: NNN). Here's why.

A healthy high yield

Community Healthcare Trust currently yields 4.3%. The healthcare REIT has weathered the COVID-19 outbreak relatively well. While some tenants have struggled, it's deferred less than 1% of its annualized rent, which it expects to receive by year end. So the company has had no problems continuing to pay its dividend.

Meanwhile, the company has a healthy balance sheet, which provides the flexibility to continue acquiring healthcare-related real estate. It has purchased several properties this year, which have helped grow its cash flow. As a result, the REIT has continued its trend of increasing its dividend each quarter. It's now boosted its payout every quarter since its initial public offering in 2015.

A high yield, paid monthly

STAG Industrial also boasts a big-time yield, currently clocking in at 4.6%. The industrial REIT has had no problem covering that payout this year. The REIT collected 98.2% of the rent it billed during the third quarter while granting deferrals for another 0.6%. Because of that, it's generated plenty of cash to pay its dividend.

STAG has benefitted from strong operating conditions in the industrial sector, especially for logistics properties. That's driving healthy leasing activity. As a result, it now expects its same-store cash NOI to rise 1.25% to 1.75% this year. That's up from its recent outlook of a 0.75% to 1.25% increase.

Meanwhile, the company has also experienced an acceleration in transaction activity during the fourth quarter. It recently announced it signed deals to buy 13 buildings for $297.9 million, which has it on track to close $801.3 million of acquisitions this year. That should enable the REIT to continue its streak of growing its monthly dividend each year.

An elite REIT

National Retail Properties currently offers the highest dividend yield of this trio at 5.1%. While the retail REIT operates in a challenging sector, it's weathered this year's downturn reasonably well. The company collected 90% of the rent it billed in October, with most deferrals on track for repayment over the coming months. That's above the average of most retail REITs.

Driving that higher-than-average collection rate is its focus on owning freestanding retail properties triple net leased to industries less affected by the pandemic, like convenience stores, automotive services, and equipment rental stores.

The company complements its solid portfolio with an excellent financial profile. It has a strong investment-grade rated balance sheet and a relatively conservative dividend payout ratio. Because of that, it's had the flexibility to continue acquiring properties. That's enabled the REIT to maintain its dividend growth streak, which currently stretches 31 years straight. That's the third-longest in the REIT sector and better than 99% of all publicly traded companies.

High-quality options for yield seekers

Community Healthcare Trust, STAG Industrial, and National Retail Properties pay above-average dividends for the REIT sector. Further, those payouts are on solid ground thanks to the strength of their portfolios and financial profiles. Because of that, these REITs also have the financial flexibility to continue expanding their portfolios, which should enable them to keep growing their high-yielding dividends. That steadily rising income stream makes them stand out as ideal high-yielding REITs to buy.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stag Industrial. The Motley Fool has a disclosure policy.