This year has been a brutal one for REIT investors. The COVID-19 outbreak has had a significant impact on the sector as it forced many businesses to temporarily close their doors to help slow the spread. That caused the unemployment rate to skyrocket and made it hard for many tenants to pay rent. Because of that, several REITs chose to reduce or suspend their dividends to conserve cash. That put pressure on the stock prices of most REITs.
However, not all REITs had to cut their payouts this year. Because of that, many pay attractive dividends these days since yields rise as stock prices fall. Three that stand out as excellent buys right now are AvalonBay Communities (NYSE: AVB), Boston Properties (NYSE: BXP), and Medical Properties Trust (NYSE: MPW).
Solid rental collections support this landlord's dividend
Shares of leading residential REIT AvalonBay Communities have slumped about 25% this year, driving its dividend yield to an attractive 4.1%. That sell-off comes even though the apartment owner hasn't had much trouble collecting rent, as it received 95% of what it billed in April and May. While high unemployment rates put some pressure on occupancy and effective rental rates, it's weathering this year's storm much better than many other REITs.
AvalonBay compliments its solid operating results with a strong financial profile. The company has a conservative dividend payout ratio that typically averages about 65% of its FFO. It also has an investment-grade balance sheet. That gives it the financial flexibility to continue paying its dividend, refinance existing debt, and invest in its communities. Because of that, the REIT's high dividend is on solid ground.
Work from home risks are overblown
Shares of the country's largest publicly traded office REIT, Boston Properties, have tumbled about 35% this year, boosting its dividend yield to 4.4%. One of the main factors weighing on the REIT's valuation is concern that people won't return to offices following the pandemic as more companies will allow employees to work from home. However, that trend likely won't be as pronounced as many fear. The vast majority of Boston Properties' tenants have continued to pay rent, with it collecting 97% in May. Meanwhile, a recent survey showed that only 12% of U.S. workers want to work from home full time, just a slight uptick from 10% before the pandemic. Younger workers, in particular, are less satisfied with the experience of working from home.
On top of those positive trends, Boston Properties boasts an excellent financial profile. The office REIT has a conservative dividend payout ratio -- usually only slightly more than 50% of its FFO -- and a cash-rich, investment-grade-rated balance sheet. Because of that, the company's payout is on a firm foundation.
This dividend is immune to a COVID-19 cut
Shares of healthcare REIT Medical Properties Trust have slumped about 10% this year, pushing its dividend yield to 5.8%. That decline comes even though the company's hospital tenants continue to pay their rent like clockwork. The company collected 96% of the rent and loan payments due in April, May and June. Because of that, the REIT remains on track to achieve its full-year FFO forecast.
That puts the company's payout in a healthy position since it will consume less than 75% of 2020's FFO projection. The REIT further backstops the dividend with a solid balance sheet, backed by a conservative leverage ratio for the sector. Because of that, the company's payout is on a firm foundation despite the troubles facing other healthcare REITs, which forced some to reduce their payouts.
Great REITs for dividend seekers
REITs can still be an excellent place for investors to find lucrative income streams. In many cases, this year's sell-off in the sector has provided dividend investors with even more enticing options since yields rise as shares fall. That's certainly the case with Boston Properties, AvalonBay Communities, and Medical Properties Trust, as each REIT offers even bigger yields due in part to the sell-off in their stock prices. Given the sustainability of their payouts, these REITs are great buys right now.
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