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3 High-Yield REITs to Buy in February

[Updated: Feb 08, 2021 ] Feb 06, 2021 by Matthew DiLallo
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Real estate investment trusts (REITs) historically offer investors above-average dividend yields. These days, that's certainly the case, as the sector's current average is above 3.5%, which is quite a bit higher than the S&P 500's 1.5% dividend yield.

Several REITs offer even bigger payouts. Three high-yielding REITs that stand out this February are Medical Properties Trust (NYSE: MPW), SL Green Realty (NYSE: SLG), and Realty Income (NYSE: O).

Continued healthy growth ahead

Medical Properties Trust is a healthcare REIT focused on owning hospitals. The REIT is coming off a huge year, as it closed nearly $3.6 billion of new investments. Those deals helped boost its normalized FFO per share by 21%. Because of that, Medical Properties Trust had no trouble covering its 4.9%-yielding dividend.

Meanwhile, the REIT has already closed on an additional $1.1 billion of properties this year. These deals should boost its normalized FFO by more than 10% in 2021 at the midpoint of its current forecast. Combined with its solid financial profile, that fast-growing cash flow stream should give Medical Properties Trust the funds to continue increasing its dividend, which it has done in each of the last eight years.

Continuing to rise amid the uncertainty

SL Green Realty is Manhattan's largest office landlord. While the office REIT faced some headwinds last year from the pandemic's impact on the city, it weathered that storm reasonably well. It shored up its balance sheet by selling assets and delivered on its leasing goals despite uncertainty about when it might be safe for companies to return to their offices.

Last year, SL Green was so successful in its strategic initiatives that it boosted its stock repurchase program by $500 million, increased its dividend for a 10th consecutive year, and paid a special dividend to its investors.

Because of that progress and the increasing likelihood a return to offices is near as vaccines roll out, SL Green's 5.7%-yielding dividend looks rock-solid. Add that income to the office REIT's upside potential as companies start occupying their offices again, and its stock could rebound sharply following last year's 35% sell-off. Meanwhile, the REIT should be able to continue growing its payout in the future as the New York office market recovers and it benefits from its current slate of development projects.

Focused on the right kind of retail properties

Realty Income is a retail REIT focused on owning single-tenant properties secured by triple net leases. Most of its tenants operate essential retail businesses like pharmacies, grocery stores, drugstores, home improvement centers, and dollar stores. Because of that, it collected a much higher percentage of its rent during the pandemic than other retail REITs. Add that to its elite balance sheet, and Realty Income has had no trouble covering its 4.6%-yielding dividend.

Realty Income's dividend has proven to be one of the most durable in the REIT sector. The company has paid 607 consecutive monthly dividends. Further, it has increased its payout 109 times since its initial public offering in 1994, including in the past 93 straight quarters. That steady growth seems likely to continue since the REIT was on track to acquire about $2 billion of cash-flowing retail properties last year, with more purchases likely in 2021.

Great yields now with even more future income potential

Medical Properties Trust, SL Green Realty, and Realty Income all boast above-average dividends, even for the REIT sector. Those big-time income streams are on solid ground, thanks to the strength of their portfolios and balance sheets. Even better, all three REITs have excellent track records of increasing their payouts each year, and these are showing no signs of ending. Because of that, they're ideal stocks for yield-seeking investors to consider purchasing this month.

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Matthew DiLallo owns shares of Medical Properties Trust and SL Green Realty. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.