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3 High-Dividend REITs to Buy Right Now

Aug 13, 2020 by Matthew DiLallo

REIT investors have been anxiously awaiting the Q2 results to see how a full quarter during the pandemic was going to turn out. This is making August a great month to confidently pick up some new high-dividend REITs. My three favorites right now are Omega Healthcare Investors (NYSE: OHI), Office Properties Income Trust (NYSE: OPI) and VICI Properties (NYSE: VICI).

Omega Healthcare Investors

Omega Healthcare Investors is a healthcare REIT that primarily invests in Skilled Nursing Facilities. They currently own 909 facilities in the United States, with another 57 in the United Kingdom.

The senior housing industry has lost some of its appeal over the past couple of years due to an increase in development causing an oversupply. Skilled nursing, on the other hand, is still very much in high demand. That demand isn’t likely to go anywhere anytime soon, either.

Omega Healthcare has stayed consistent with its growth through new investments while doing an excellent job managing the debt along the way. Even after $1.7B in new investments in 2019, it has maintained a conservative level of leverage with a debt/EBITDA ratio of 5.75.

Its portfolio isn’t the only thing that’s grown. Its FFO has nearly doubled in the past five years, from $345.5M in 2014 to $640M in 2019 and $706M TTM since June, 2020.

Other than a $0.02 dip in the dividend rate in 2015, its dividends have grown every year since 2004. Its payout ratio is a bit higher than I normally like, at about 86%, but it has been maintaining that same ratio for the past two years while still growing and keeping debt under control. You’ll just want to keep an eye on that payout ratio to make sure it doesn’t jump too high to maintain the same dividend rate.

The other thing to keep a close eye on with Omega is Medicare. Any significant cuts to Medicare could be a problem for the operators that lease the facilities from Omega, since a significant portion of their revenue comes from Medicare reimbursement.

Overall, Omega Healthcare Investors is paying a great dividend and is priced at a discount compared to their peers. Their price to FFO ratio is currently at 10.6x compared to an average of 12.4 across healthcare REITs. This could be a great income REIT to add to your portfolio.

Office Properties Income Trust

Office Properties Income currently owns 184 office buildings in some of the strongest markets in the United States. These properties add up to 24.9M square feet. They’re currently sitting at 91.5% occupancy across their portfolio, with minimal rent deferments during the pandemic.

Office REITs may have some investors nervous at the moment. The pandemic has caused speculation that the need for office space will decrease due to many employees continuing to work remotely. However, Office Properties Income may be one of the most immune office REITs in this scenario.

It currently receives 62% of its rental revenue from investment-grade tenants, with the majority of them being federal and state governments. These are mostly tenants that are unlikely to keep many employees in remote positions as businesses continue to open back up. Most of these tenants have lease maturities that aren’t up until 2025 or later, which will help to carry them through any lasting negative economic impacts from the COVID-19 pandemic.

OPI made some significant improvements to its balance sheet in 2019 with some dispositions, putting its debt-to-EBITDA ratio at 5.76, which is below its target of 6.0–6.5. These dispositions have also saved an estimated $130M in capital expenditure costs over the next five years.

While dividends as high as 8.5% often mean a high payout ratio, and a potential cut, I would say these dividends are safe with an extremely conservative payout ratio of only 39.8%.

The only real concern I see at this moment is the amount of debt maturing over the next five years. Over $1.13B of its almost $2.18B of debt is due between now and 2025. However, refinancing shouldn’t be too much of an issue with its investment-grade tenants and strong cash flow.

Overall, I think a REIT with this strong of a tenant base, a well diversified portfolio geographically, a safe level of debt, and a dividend yield of 8.58% at a payout ratio of under 40% is a good buy for some dividend income.

VICI Properties

A gaming REIT with tenants that are heavily dependent on leisure travel and large groups of people gathering indoors might not sound like a winning bet when it comes to good buys this month, but hear me out.

VICI owns gaming and hospitality properties occupied by five of the top companies in the industry.

  • Caesars Entertainment (NASDAQ: CZR)
  • Penn National Gaming (NASDAQ: PENN)
  • Hard Rock
  • Century Casinos (NASDAQ: CNTY)
  • JACK Entertainment

Its properties are 100% leased on triple-net leases and 100% of rent has been collected for 2020.

While their portfolio is spread out across a handful of markets in the United States, 31% of their current portfolio is in Las Vegas. VICI also has some major growth opportunities along the strip in Las Vegas, with control of roughly 50 acres of land ready for development.

Since the very recent merger of Eldorado resorts and Caesars Entertainment, VICI’s largest tenant is now the largest casino and entertainment company in the United States. This deal has given even more strength to VICI’s portfolio.

This gaming REIT may be a bit of a gamble, but I believe they’re sitting on a really strong hand. If you still feel confident in this industry, now would be a great time to get in on this REIT and watch it grow as it stakes a larger claim in the gaming industry.

Symbol Market Cap Dividend Rate Dividend Yield
OHI $7.75B $2.68 8.06%
OPI $1.24B $2.20 8.58%
VICI $12.21B $1.19 5.2%

Source: Nareit

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Matthew DiLallo 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.