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3 Top REITs to Buy With Dividends Above 3%

Jan 13, 2021 by Matthew DiLallo
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With the Federal Reserve keeping interest rates low and the stock market near all-time highs, it's getting harder for income-seeking investors to find compelling yields. Most bonds and bank CDs offer meager interest rates. Meanwhile, the dividend yield of the average stock in the S&P 500 is around 1.5%.

However, real estate investment trusts (REITs) stand out as an attractive place for yield-seeking investors. The sector's average dividend is above 3%, giving investors lots of options. Three top REITs for investors looking for a high yield to consider are Crown Castle International (NYSE: CCI), Camden Property Trust (NYSE: CPT), and Digital Realty Trust (NYSE: DLR).

A steadily climbing yield

Infrastructure REIT Crown Castle recently increased its dividend by 11%, boosting the yield to 3.4%. The REIT supports that income stream with a reasonable payout ratio of 80% of its projected 2021 AFFO and a strong investment-grade rated balance sheet.

However, as attractive as the current payout might be, what makes Crown Castle stand out is its growth potential. The tower and fiber optic infrastructure operator believes it can grow its AFFO per share at a 7% to 8% annual rate over the long term. Powering that forecast is the rapid growth of mobile data traffic, driving the need for new infrastructure. The REI believes it has at least a decade of growth ahead as the communications industry transitions to 5G, making it a great income stock to buy and hold for the long term.

A top-notch landlord

Residential REIT Camden Property Trust also yields 3.4%. That above-average payout is on rock-solid ground. The REIT has a well-covered dividend, a top-notch balance sheet, and a well-located portfolio. The right location has been crucial amid the pandemic, as properties in suburban and Sun Belt areas -- where Camden operates -- have held up much better than high-cost urban cores along the coasts.

Meanwhile, Camden has lots of growth potential ahead thanks to its development pipeline and high-quality balance sheet. The company currently has more than $1 billion of development projects under construction that should stabilize over the next few years. As they do, they should help expand its FFO. On top of that, it has the financial flexibility to make acquisitions and start new development and redevelopment projects. As a result, the REIT should have no trouble continuing to grow its dividend, making it a great option for income investors.

Data-driven dividend growth

Data center REIT Digital Realty also currently yields 3.4%. Like the other REITs on this list, that payout is on solid ground. The REIT boasts a strong investment-grade credit rating and a reasonable dividend payout ratio.

There's also lots of upside potential with Digital Realty's dividend. The REIT has already increased its payout in each of the last 15 years, growing it at an impressive 12% compound annual rate. That upward trend should continue, given the REIT has $2 billion of data center development projects already underway to help power FFO growth in the near term. On top of that, it has a long history of making value-enhancing acquisitions to power faster growth.

Above-average current yields with upside ahead

Crown Castle, Camden Property, and Digital Realty all boast above-average dividend yields backed by rock-solid financials, as well as visible growth prospects. Because of that, this trio of REITs stands out as great options for yield-seeking investors 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.