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3 Top REITs to Buy with Dividends Above 7%


[Updated: Mar 03, 2021] Jan 11, 2021 by Kevin Vandenboss
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As share prices continue to recover, there are fewer options for real estate investment trusts REITs with dividends above 7% than there were just a couple months ago. Luckily, there are still a few great buys that will allow investors to lock in high yields on REITs that should prove to provide long-term cash flow for investors.

These REITs are Sabra Health Care REIT (NASDAQ: SBRA), Iron Mountain (NYSE: IRM), and Omega Healthcare Investors (NYSE: OHI)

Sabra Health Care REIT, Inc.

Sabra Health Care is a healthcare REIT that invests primarily in skilled nursing facilities, but also owns senior housing properties, and specialty properties. The majority of the company’s properties are triple net leased, while roughly 40% of its senior housing properties are managed by operating partners.

While a decline in occupancy and increase in expenses in its managed senior housing portfolio due to the pandemic has had an impact on the REIT’s funds from operations (FFO), its dividend payout ratio remains at a safe 72%.

Sabra’s balance sheet remains strong as well, with a net debt/EBITDA ratio of 4.91x and no significant debt maturities until 2024.

With its safe dividend and attractive valuation of a 9.4x FFO multiple, Sabra Healthcare REIT is a strong buy for a high-dividend REIT that’s also looking at some upside potential over the next couple of years.

Iron Mountain

Most people recognize Iron Mountain as the document-shredding and secure-storage business. However, it's been making waves in the data center industry and becoming a major player there.

While data storage seems to be a significant piece to the company’s future growth plans, its core business is still secure storage, which is still growing. Iron Mountain’s storage revenue for Q3 is up 3.4% in 2020 vs 2019, with the first nine months of 2020 being up 2.6% versus the same time period in 2019.

Based on the REIT’s Q3 2020 results, its 8.39% dividend yield is fairly well covered with an AFFO payout ratio of 84%. However, I wouldn’t expect to see any dividend increases in the near future since the company’s target AFFO payout ratio is in the mid 60% range.

With Iron Mountain’s strong core storage business, its growth prospects in the data storage arena, and very attractive dividend, I think this REIT is a great buy at its current price.

Omega Healthcare Investors

Omega Healthcare Investors is another healthcare REIT that invests in skilled nursing and senior housing, but one of the main differences between them and Sabra is that OImega invests solely in triple net leased properties.

The triple net only model has been one of the major contributors to the REIT’s resilience through the pandemic since revenue isn’t directly tied to the occupancy within each property. Of course, there is still the looming risk associated with tenants being able to pay due to declines in occupancy.

As the largest owner of skilled nursing facilities, Omega Healthcare Investors still only has 5% of the market share. This means there is plenty of room for the company to continue growing. In fact, the company expects to double in size over the next 10 years. This isn’t a far-fetched goal with the aging baby boomer generation expected to continue driving occupancy growth for the next 20 years.

Not only is Omega paying a heft dividend that’s currently a 7.38% yield, the company has increased dividends for 17 consecutive years. In fact, the company has increased their dividends by over 20% in the past five years.

With an AFFO payout ratio of 81.9%, current dividends look safe, and future increases are likely with the company’s growth.

High dividends for years to come

It’s wise to be extra cautious of high-dividend REITs, because oftentimes the dividends aren’t sustainable. However, when it comes to Sabra Healthcare REIT, Iron Mountain, and Omega Healthcare Investors, I believe investors will continue to receive consistent dividend payouts each quarter for years to come.

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Kevin Vandenboss has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.