Real estate investment trusts (REITs) are one of the most popular options for investors seeking regular income. A real estate investment trust must distribute more than 90% of its earnings each year in order to maintain its tax-free status. For investors, that means relatively high dividend payments and consistent dividend policies.
REITs rebounded from the subprime mortgage meltdown of 2008 that hammered real property values for some years.
They are popular with investors because they often offer a higher dividend yield than corporate or government bonds. Also, their shares are traded on exchanges, giving them liquidity plus the potential for growth as well as income.
REIT's 2022 annual return, as measured by the MSCI U.S. REIT Index, was -24.51. That is one of just three negative performances out of 14 since 2009.
Key Takeaways
- Real estate investment trusts (REITs) are an investment that offers steady income.
- There are a handful of REITs that pay dividends on a monthly basis.
- Some of the most well-known monthly dividend payers include Realty Income (O), AGNC Investment Corp. (AGNC), and STAG Industrial (STAG).
- REITs give investors the chance to earn returns from commercial real estate without having to own the actual properties themselves.
REIT Distributions
While some stocks distribute dividends on a quarterly or annual basis, certain REITs pay quarterly or monthly. That can be an advantage for investors, whether the money is used for enhancing income or for reinvestment, especially since more frequent payments compound faster.
Here are a half-dozen REIT prospects, each specializing in a different niche of the real estate sector.
1. AGNC Investment Corp. (AGNC)
AGNC Investment Corp., formerly known as American Capital Agency Corporation, invests in high-quality mortgage-backed securities including pass-through securities and collateralized mortgage obligations. These securities are guaranteed by a government-sponsored agency, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
It also invests in some residential and commercial mortgage-backed securities that are not government-guaranteed.
The holdings of the company represent debt that is highly sensitive to changes in market interest rates. Thus, AGNC Investment's holdings are susceptible to interest rate risk. However, management extensively hedges its interest rate risks and regularly rebalances the portfolio.
In July 2023, AGNC Investment Corp. paid a monthly dividend of $0.12 per share (for an annual dividend per share of $1.44). Its dividend yield is 14.22%.
2. Apple Hospitality (APLE)
Apple Hospitality (APLE) specializes in upscale hotels. One of the largest hospitality-sector REITs, it owns and operates (through property management companies) 220 mostly Marriott- and Hilton-branded hotels in urban, suburban, and developing markets. The company has consistently reinvested a big portion of its cash flows into its portfolio, resulting in high customer satisfaction and stable capital needs.
In July 2023, the company paid a monthly dividend of $0.08 per share (for an annual dividend per share of $0.96). Its dividend yield is 6.32%.
REITs were established in 1960 by the U.S. Congress to give individual investors the opportunity to earn returns from commercial real estate investments without having to invest in the actual properties.
3. Realty Income (O)
Realty Income (O) was founded in 1969 by William and Joan Clark to provide reliable monthly income to investors. It is a REIT that invests in commercial properties that have long-term leases with high-performance operators. It is the self-proclaimed "Monthly Dividend Company."
Realty Income has declared 637 consecutive dividends over 54 years. And since becoming listed in 1994, it has increased its dividend 121 times. Its average annual shareholder return since 1994 is 14.6%.
This REIT's portfolio consists of a diversified grouping of more than 12,400 free-standing commercial properties that are leased to over 1,250 retail and industrial clients in 84 industries. The company has a presence in all 50 U.S. states, as well as in Puerto Rico, the United Kingdom, Spain, and Italy.
In July 2023, Realty Income paid a monthly dividend of $0.2555 per share (for an annual dividend per share of $3.06). Its dividend yield is 5%.
4. EPR Properties (EPR)
EPR Properties (EPR) is a small-cap growth REIT that focuses primarily on experiential real estate. That is, entertainment, performance, and recreation venues such as theaters, theme parks, and casinos. EPR Properties also has an education property portfolio (specifically private schools and early childhood education centers) but has plans to step away from this type of real estate.
As of the end of 2022, EPR Properties had about $6.2 billion invested in over 250 experiential properties in 44 states plus Ontario, Canada. EPR Properties typically rents its properties using triple net leases with operational, maintenance, insurance, and tax costs borne by its tenants.
In July 2023, the company paid a monthly dividend of $0.275 per share (for an annual dividend per share of $3.30). Its dividend yield is 7.31%
5. LTC Properties (LTC)
LTC Properties, Inc. (LTC) manages a portfolio of senior housing and long-term care facilities, including skilled nursing, assisted living, independent living, and memory care facilities. It currently owns over 212 properties in 29 states.
LTC primarily earns its income by leasing its properties using triple net leases and investing in mortgage loans.
In July 2023, the company paid a monthly dividend of $0.19 per share (for an annual dividend per share of $2.28). Its dividend yield is 6.68%.
6. STAG Industrial (STAG)
STAG Industrial (STAG) invests in industrial-use properties, mostly distribution centers and warehouses with some light manufacturing facilities thrown in. As of December 2022, it had 562 properties in 41 states.
STAG primarily leases its buildings to single tenants in a large number of markets. As a result, it doesn't have to contend with the constant turnover that multi-tenant properties like shopping centers and office parks often experience. And it achieves a healthier diversification than companies focused on a few primary markets Its weighted average lease length is about 4.7 years.
In July 2023, the company paid a monthly dividend of $0.1225 per share (for an annual dividend per share of $1.47). Its dividend yield is 3.87%.
What Is a REIT?
A REIT, or real estate investment trust, is a company that invests in income-producing real estate properties. It passes on part of its earnings to investors as distributions. Most REITs are publicly traded companies.
Are REITs Good Investments?
Potentially. They provide investors with a diversification opportunity and a regular income stream through dividends. REITs also offer the possibility for long-term capital appreciation, which adds to investors' return.
How Are REIT Dividends Taxed?
Normally, REIT dividends are taxed as ordinary income at an investor's tax bracket rate. Some REITs offer dividend reinvestment plans (DRIPs). Reinvested dividends buy additional shares of the trust.
The Bottom Line
REITs are prime investment choices for many investors due to the regular income they provide and their liquidity. They often offer attractive returns and can help to diversify a portfolio focused on equities and bonds.
However, REITs can be sensitive to interest rate changes. They can also have high fees. Investors should be sure to understand their costs and how they operate before buying shares.
