Finding attractive dividend yields while the S&P500 index offers a paltry return of 1.2% is quite difficult, but not impossible. One area to watch is real estate investment trusts (REITs), which as a group have a yield of 3.7%, using the Vanguard Real Estate Index ETF as a proxy for the sector.
But you can do even better if you’re picky, and you don’t have to give up revenue to support great companies like Federal Real Estate (NYSE: FRT), NNN REIT (NYSE: NNN)or Real estate income (NYSE:O). Here’s a look at each, including one that is a very elite Dividend King.
1. Federal Realty is the (dividend) king of REITs
A company must increase its dividend every year for 50 consecutive years to earn the nickname Dividend King. Federal Realty’s streak is up to 57 years (and counting). It has the longest dividend streak of any publicly traded REIT. If you’re looking for a reliable dividend stock that you could own forever, this is the stock to look at today. And the dividend yield is just under 4%, which is easily better than the REIT average.
What exactly does this reliable dividend stock do besides checking coin dividends? For starters, it owns shopping centers and mixed-use developments. But what really sets it apart from its competitors is its focus on quality over quantity. While competitors often own hundreds of properties, Federal Realty likes to keep its portfolio at approximately 100 locations. These properties are usually large and very well located. The average population and income levels around the retail properties are well above the average for the niche.
Additionally, Federal Realty has a knack for purchasing older assets and assets with expansion potential. The REIT then redevelops the properties to increase their value and increase the rents it can charge tenants. This core skill leads to another important aspect of Federal Realty’s business: it actively manages its portfolio.
When a property has reached its full potential and management can get a good price out of it, it is sold. The proceeds are used to restart the process. Clearly, Federal Realty has a model that works and is worth owning if you want to hold shares for decades.
2. NNN REIT is a relationship builder
Next is NNN REIT, with a dividend yield of about 4.9%, well north of the average REIT. And the series of annual dividend increases lasts up to 35 years. You can’t raise the dividend for three and a half decades without doing something right. In this case, the relationships the company has built over time are a major reason for the company’s success.
Between 2007 and 2024, approximately 72% of NNN REIT’s acquisitions are from existing tenants. These transactions also generated higher returns than real estate purchases on the open market. In short, NNN REIT’s tenants know they can go to the company and close a deal with little to no hassle, and they’re willing to pay more for that security. It’s a win/win/win situation as investors also benefit in the form of a steadily growing dividend.
It helps that NNN REIT’s target property type is retail net lease. Net leases require tenants to pay for most expenses at the property level, which reduces risk and costs for NNN REIT. And retail properties tend to be fairly interchangeable, making it easier to buy, sell and re-rent them when there are vacancies. All in all, NNN REIT has a solid business model in an attractive niche – if you want to earn above-average returns for years to come.
3. Realty Income is the net leasing giant
Last but not least is Realty Income, which is also a net lease REIT. It has a dividend yield of 5.1% and has increased its dividend annually for 29 consecutive years. While there is a notable overlap between NNN and Realty Income, there are good reasons to buy them both.
To start, NNN REIT focuses on US retail assets. Realty Income’s portfolio is spread across North America and, increasingly, Europe, providing geographic diversification for your high-yield portfolio. Realty Income’s real estate exposure also includes retail (73% of rents); non-retail, which is largely industrial assets (about 17%); and a large “other” category, which also includes casinos and vineyards. So you can also add property type diversification.
However, the most attractive aspect of Realty Income is probably its size. While NNN REIT has a market cap of nearly $9 billion, Realty Income is the largest name in the net lease industry, weighing in at nearly $54 billion. Add to that an investment grade-rated balance sheet and Realty Income typically has privileged access to the capital markets, allowing it to compete aggressively for real estate while still generating attractive returns.
Given its size, it can close the deal on transactions that peers might not even consider (including single large properties, portfolio acquisitions and even acting as an industry consolidator). If you don’t mind a little overlap in your dividend portfolio, Realty Income is a rock-solid dividend stock that you can easily pass on to your heirs.
Forever is a long time, but achievable if you buy right
Whether you have $1,000, $10,000, or $100,000, these three high-yield stocks are all worth a deep dive. The key is the consistency of their dividend payments, which in both cases are backed by a very strong business. These are the types of companies that can keep paying you through thick and thin. Federal Realty is the “king” of the list in terms of dividend reliability, but NNN REIT and Realty Income are no slouch. And they all offer returns that are above the market average and REIT average.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Reuben Gregg Brewer has positions in Federal Realty Investment Trust and Realty Income. The Motley Fool holds positions in and recommends Realty Income and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
3 Incredibly Reliable High-Yield Stocks to Buy with $1,000 and Hold Forever was originally published by The Motley Fool
