Real estate investment trusts (REITs) are favored by income investors due to their obligation to distribute most of their profits as dividends. Today, we will focus on five REITs with high yields ranging from 8.3% to 9.3%. Timing the purchase of REITs can be tricky, as buying them before rate hikes could be detrimental since REITs thrive on cheap money. The recent rate hiking cycle has been challenging for REITs, but with rate hikes appearing to be over, it may be a good time to consider investing in them, especially with potential rate cuts on the horizon.
Although REITs are waiting for actual rate cuts before rallying, investors who take a contrarian approach may see the value in recession-resistant income that benefits from rate cuts. While the real estate sector is currently down despite the overall market being up year-to-date, this could present an opportunity for investors looking for stable dividends. As investors, the focus is on dullness and stability when it comes to dividends, rather than excitement and volatility.
One of the REITs yielding an average of 8.7% is Healthcare Realty Trust (HR), which specializes in medical outpatient buildings across 35 states. The recent merger with Healthcare Trust of America in 2022 has expanded its scale, but the company still faces challenges in terms of occupancy rates and leverage. Similarly, Sabra Health Care REIT (SBRA) focuses on senior healthcare facilities and has shown some improvement in occupancy rates but still faces earnings growth challenges. Omega Healthcare Investors (OHI) provides financing to healthcare facilities and has stabilized but has not seen significant improvement in its business.
EPR Properties (EPR) prioritizes experiences over products with a portfolio of entertainment and leisure locations, but its theater segment remains a challenge. The recent increase in the monthly dividend is a positive sign, but the theater business could continue to put pressure on the company. Easterly Government Properties (DEA) owns properties leased to U.S. government agencies but has seen little growth in funds from operations (FFO) over the years. The stability of government tenants is a benefit, but the company’s inability to cover its full-year dividend obligation raises concerns for potential investors.
Looking ahead, investors in REITs will need to consider the potential impact of rate cuts on these companies and how they are positioned to benefit from this environment. With a focus on stable and reliable income, these REITs offer high yields but also come with challenges and risks that investors should carefully assess before making investment decisions. As the market continues to evolve, the performance of these REITs will be closely monitored to see how they navigate the changing economic landscape.
