10 Income-Increasing REITs to Buy
Real estate investment trusts (REITs) come in all shapes and sizes these days.
But the one thing that they have in common is they all pay out 90% of their taxable income as dividends to shareholders. Traditionally, that has meant, as rents go up, dividends go up.
Nowadays, that isn’t always the case since a lot of companies that have chosen REIT status don’t necessarily focus on the lease or rent aspect of the real estate business. We’ll discuss some of the best below.
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But at the end of day, REITs are about income. And that means they’re long-term holdings, not trades. There’s no point in buying an income stock for the short term. You buy them with the expectation that they will grow and their dividends will grow as well.
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Below are 10 income-increasing REITs you can buy now to boost your income for years to come.
Income-Increasing REITs to Buy: Community Healthcare (CHCT)
Source: Shutterstock
Dividend Yield: 5%
Community Healthcare Trust Inc (NYSE:CHCT) is in one of the hottest real estate sectors there is today — healthcare.
CHCT leases its properties to hospitals, doctors, healthcare systems and healthcare service providers. This has become a booming business as healthcare systems have been burdened by the transition to electronic records, as well as the challenges of running for-profit operations.
The last thing most healthcare organizations need is to be property managers on top of being healthcare professionals.
CHCT is small, operating with a $576 million market cap. But the stock is up around 30% in the past year and is still delivering a 5% dividend. It’s doing well and is also a tempting takeover target.
Income-Increasing REITs to Buy: Arbor Realty Trust (ABR)
Source: 401(K) 2012 via Flickr (Modified)
Dividend Yield: 8.7%
Arbor Realty Trust (NYSE:ABR) is one of those newer REITs that doesn’t actually own properties. It finances properties for multifamily homes, healthcare, senior housing and other specialty ventures.
Technically, ABR could hold CHCT loans. And both are separate REITs.
The fact is, ABR is smack dab in the middle of gigantic long-term trend, the graying of America. More seniors are downsizing, and either moving into smaller homes or looking at assisted living facilities. And as they age, they are going to require more medical treatment and observation.
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ABR has all its bases covered. Up nearly 40% in the past 12 months, and still throwing off a substantial 8.7% dividend, its still only trading a price-to-earnings ratio of around 9.
Income-Increasing REITs to Buy: STORE Capital (STOR)
Source: Shutterstock
Dividend Yield: 4.4%
STORE Capital Corporation (NYSE:STOR) is another unique REIT, but it does hold property. It just goes about working with its tenants in somewhat unique way.
STOR is a net-lease firm that specializes in working with companies that are real estate intensive. For example, large restaurant chains or large standalone stores or business offices.
Net-lease firms means that instead of paying a flat rent to STOR, they pay rent net property tax, building insurance and maintenance. This is more advantageous to some large businesses because they scale differently than other businesses.
STOR recently caught the eye of uber-investor Warren Buffett who recently took a stake in the company.
The stock delivers a 4.4% dividend and is up 19% in the past year.
Income-Increasing REITs to Buy: Manhattan Bridge Capital (LOAN)
Source: Shutterstock
Dividend Yield: 7.1%
Manhattan Bridge Capital (NASDAQ:LOAN) is about the most targeted REIT of the bunch. Its sole focus is on originating, servicing and managing a portfolio of first mortgages for Manhattan properties in New York City.
Given its focused business model, you really have to make sure that the Big Apple is in good shape and the broader economy will support growth on the island. That is happening now.
It’s also a good sign that the stock market continues to grow and that global growth is also showing signs that it is reviving for the long term.
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To keep investors interested, LOAN offers a healthy 7.1% dividend, which combined with a 20% return on the stock in the past year, makes for a solid total-return play. Just remember, it has a $64 million market cap, so it can be a bit volatile if rates change or the economy shifts.
Income-Increasing REITs to Buy: CubeSmart (CUBE)
Source: Shutterstock
Dividend Yield: 3.9%
CubeSmart (NYSE:CUBE) is in the storage business. This was a huge growth industry a few years after the financial meltdown, as people were moving wherever there was opportunity and had to put their belongings in storage until they could actually settle down.
CUBE has over 1,000 storage facilities across the country. It’s a relative newcomer to the game, only launching in 2004, but it was ideal timing to be sure. Now, the company has a $5 billion market cap.
Now that we’ve passed the boom cycle for individuals, the stock has stabilized. Although a 25% return in the past year and a 3.9% dividend on top of that still has enough growth and income to satisfy most conservative investors.
Income-Increasing REITs to Buy: New Residential Investment Corp (NRZ)
Source: Shutterstock
Dividend Yield: 11%
New Residential Investment Corp (NYSE:NRZ) is another interesting REIT that doesn’t actually own properties, instead servicing the mortgages behind residential properties.
There are parts of a mortgage contract called Mortgage Servicing Rights (MSRs). An MSR provides a mortgage servicer with the right to service a pool of mortgage loans in exchange for a fee.
About 75% of MSRs are held by banks. But most banks aren’t interested in this aspect of servicing mortgages because of new banking regulations. The more MSRs they hold, the higher their reserve requirements and the less money they can put back into investments.
NRZ is going after MSRs. They’re a steady stream of income as long as the housing markets are stable to growing. And higher interest rates and home values will even help boost MSRs’ value.
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NRZ has a $6 billion market cap, so it’s not hanging on by its teeth. And it’s delivering a whopping 11% dividend. The may only be up 8.5% in the past year, but that dividend certainly makes for an impressive total return.
Income-Increasing REITs to Buy: Ladder Capital (LADR)
Source: Yuriy Trubitsyn via Unsplash
Ladder Capital Corp (NYSE:LADR) focuses on financing for commercial properties. And this is a very good time to be in this sector.
Commercial development generally runs in multiyear cycles and we’re starting a new upswing.
For example, as we’ve witnessed the death of shopping malls and large department stores as online retail has made its presence known, that means these properties will be reimagined and redeveloped. The same goes for strip malls.
Brick and mortar is not dead in the retail sector, just changing. And new companies that are coming from the new economy are also looking to build offices in new locales. Established companies also see this as a time to look at rebuilding now that rates are still low and business is expanding.
LADR delivers a 7.7% dividend and has posted a 24% 12-month return yet still has a PE of 10.
Income-Increasing REITs to Buy: National Storage Affiliates (NSA)
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