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3 Top REITs to Buy With Dividends Above 3%

Dec 09, 2020 by Matthew DiLallo
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Real estate investment trusts (REITs) are a great place for income-seeking investors to score an above-average dividend yield. Currently, the average payout of stocks in the S&P 500 is 1.8%. However, most REITs pay well above that level.

Three that currently stand out for their enticing dividend yields are Agree Realty (NYSE: ADC), Crown Castle International (NYSE: CCI), and Digital Realty Trust (NYSE: DLR). Not only does each one currently yield well above 3%, but those payouts should also continue expanding in the coming years.

A big shopping spree yields a growing dividend

Agree Realty is a retail REIT that currently yields 3.8%. While the retail sector has been under pressure this year due to the COVID-19 outbreak, the pandemic hasn't had much impact on Agree Realty's ability to collect rent. That's because the company focuses on owning properties that are triple-net leased to primarily essential retailers with investment-grade credit ratings. As a result, it enjoyed strong rental collection rates this year, including 97% in the third quarter and 99% in September, October, and November.

That high-quality portfolio has given Agree Realty the confidence to continue growing its dividend this year. It recently increased its payout by 3.3%, bringing its year-over-year boost to 6%. That upward trend in the dividend seems likely to continue. Agree Realty expects to acquire $1.25 billion to $1.35 billion of new properties this year, well above its initial $600 million to $700 million guidance range and 2019's record investment level of $733.8 million. The company has plenty of financial flexibility to go on this shopping spree thanks to its fortress-like balance sheet.

Towering divided growth ahead

Crown Castle International currently yields 3.3%. The infrastructure REIT is also having a strong 2020 as demand for mobile data remains healthy. As a result, the REIT recently boosted its full-year outlook for 2020, expecting 7% year-over-year growth in AFFO per share. Meanwhile, it expects even faster growth in 2021, projecting a 10% year-over-year increase from this year's anticipated level. That outlook recently gave Crown Castle the confidence to boost its dividend by another 11% over the previous quarter.

Meanwhile, the REIT sees a decade of growth still ahead. Overall, it's targeting 7% to 8% annual AFFO per share growth over the long term. That outlook suggests the REIT should be able to continue expanding its above-average dividend at an attractive rate in the coming years.

Plenty of power to keep boosting the payout

Data center REIT Digital Realty also yields 3.3%. The company boosted that payout by another 3.7% in February. That marked its 15th straight year of raising the shareholder payout.

That streak seems likely to continue. Powering that view is the fast-paced growth of data, driving the need for new data centers worldwide. This trend has provided the company with lots of expansion opportunities this year, as it's made a few acquisitions while also launching several new development projects. Meanwhile, it has a solid investment-grade balance sheet and a healthy dividend payout ratio, which gives it the flexibility to continue capturing growth opportunities.

Great income now, even more later

Agree Realty, Crown Castle International, and Digital Realty are great options for dividend investors. Not only do all three REITs offer payouts above 3%, but they also should have no problem increasing their dividends in the future. That growing income stream could enable these REITs to generate market-beating total returns in the coming years, making them great dividend stocks to buy right now.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Crown Castle International and Digital Realty Trust. The Motley Fool has a disclosure policy.