Here are some high-paying REITs that all have long-term growth potential.
Real estate investment trusts (REITs) can make excellent dividend stocks. Thanks to their favorable tax structure, they tend to offer some of the highest dividend yields in the market, and they also have the potential for growth, as their underlying properties appreciate in value over time.
Here are three particularly attractive REITs that could be excellent additions to your portfolio, all of which pay dividend yields well over 5%, based on their current stock prices.
A hotel REIT that looks like a bargain
Apple Hospitality REIT is one of the largest hotel-focused REITs in the market, with 235 hotels in its portfolio, operated under various Marriott and Hilton brand names.
Instead of investing in high-end hotels, Apple Hospitality invests in what are known as select-service hotel properties. Essentially, these are brands that serve the middle of the market, without the high-end amenities of luxury hotels, but with significantly more features than bargain-oriented hotels. Homewood Suites and Courtyard by Marriott are two well-known examples of select-service brands, which both make up a significant portion of the company’s portfolio.
Apple Hospitality’s competitive advantage, aside from its size, is its willingness to reinvest in its own properties in order to maintain a portfolio of properties that are superior to those owned by the competition. Additionally, all of the properties are managed by third-party companies with management fees that are directly related to the performance of the properties, which provides an added incentive to maximize returns.
To be clear, hotels are not a recession-resistant form of real estate. Their day-to-day rental structure is a great thing during prosperous times, but also allows vacancies to spike and revenues to plummet during bad times. However, select-service hotels are well-positioned to take advantage of luxury hotel customers who need to cut back when times get tough, which helps to mitigate this risk.
Senior housing could be an amazing growth opportunity
The baby boomer generation is aging rapidly. In fact, the senior citizen population in the United States is expected to roughly double by 2050. This could create a steady opportunity for companies in the senior housing industry, like Senior Housing Properties Trust.
The company currently owns 434 properties in 42 states and D.C., but despite the name, only about half (by net operating income) are senior housing. Most of the rest (41%) are medical office buildings, and Senior Housing Properties Trust also has smaller allocations of skilled nursing facilities and wellness centers.
So, the aging population could help the senior housing portion of the portfolio for obvious reasons, and also create a steady stream of growth opportunities. As far as the medical offices go, consider that the average senior citizen spends more than double the average American’s healthcare spending every year. Seniors use medical offices more frequently, and spend more when they do (including insurance), so this could be a long-tailed positive catalyst for senior housing as well.
Finally, you may be thinking to yourself that an 8.2% dividend yield sounds too good to be true, and in many cases, you’d be right. In fact, I encourage you to question the viability of any high dividend like this. However, in Senior Housing Properties Trusts’ case, there’s little cause for concern. The current dividend represents a payout ratio of 83%, which is not at all excessive for a REIT.