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3 Top REITs to Buy With Dividends Above 5%

Jan 13, 2021 by Matt Frankel, CFP
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Healthcare real estate is one of the most resilient types of commercial real estate, and the COVID-19 pandemic helped reinforce this concept. Not only are healthcare REITs, or real estate investment trusts, typically leased to very high-quality tenants that have little risk of bankruptcy or default, but healthcare itself is about as recession-resistant a business as you can find. And in pandemic times, it's also one of the most essential.

In fact, it's because of this resilience that most healthcare REITs either maintained or increased their dividends in 2020 while many others decided to suspend their payouts to preserve capital.

Not only is healthcare an extremely resilient type of commercial real estate, it also is one of the most exciting in terms of growth prospects. With the senior citizen population of the United States expected to roughly double over the next 30 years, demand for high-quality healthcare properties should gradually increase over time. And of the current $1.1 trillion in healthcare properties in the U.S., only about 15% of them are owned by REITs, which should create a ton of acquisition opportunities.

This medical office REIT has barely been affected by the pandemic

Physicians Realty Trust (NYSE: DOC) is a medical office REIT that primarily owns properties affiliated with major healthcare systems. The stock currently pays a 5.5% dividend yield and has a market cap of $3.5 billion.

In an interview with CEO J.T. Thomas, he said the COVID-19 pandemic hasn't affected the company much, aside from causing it to pump the brakes on growth. Virtually all of its billed rent has been collected, and most tenants have been open for business throughout the pandemic.

What's more, Thomas estimates that there's an investable universe of between $250 billion and $300 billion worth of medical office properties in the existing market that could meet the company's criteria. With about $5 billion in medical office real estate currently in the portfolio, that's a huge runway for growth.

A three-sided approach to healthcare investing

Unlike the other two companies discussed here, Healthpeak Properties (NYSE: PEAK) doesn't focus on a single type of healthcare property. It owns roughly equal portions of medical offices, senior housing facilities, and life science properties. One of the largest healthcare REITs in the market, Healthpeak has a $15.3 billion market cap and pays a 5.2% dividend yield based on its current stock price.

In a nutshell, the medical office portfolio brings the same type of resilient income I discussed in the previous section. Life science properties are a high-growth type of real estate, as healthcare innovation has never been more exciting than it is now. And the senior housing portfolio adds an element of rebound potential, as senior living was hard-hit by the COVID-19 pandemic but remains a much-needed industry with high long-term growth potential as the population ages.

Hospitals are perhaps the most resilient type of healthcare real estate

Medical Properties Trust (NYSE: MPW) is the largest REIT that is a pure play on hospital real estate, with a portfolio of 385 properties located throughout the U.S., Europe, and Australia. And this 5.1%-yielding REIT is also the only one with any significant international healthcare exposure.

Like medical offices, hospitals were barely affected by the pandemic (in terms of their rental reliability, not the effects of the pandemic itself). Medical Properties Trust collected 98% or more of its rent throughout 2020, and its earnings (FFO) actually increased in 2020.

An excellent all-around type of dividend stock

If you want a nice combination of growth, income, and safety in your portfolio, these are three excellent healthcare REITs you might want to consider. Just keep in mind that like all REITs, these are best suited for long-term investors who have several years (at a minimum) to let their investments grow.

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Matthew Frankel, CFP owns shares of Healthpeak Properties, Inc. The Motley Fool owns shares of and recommends Physicians Realty Trust. The Motley Fool recommends Healthpeak Properties, Inc. The Motley Fool has a disclosure policy.