The average real estate investment trust (REIT) has a yield of around 3.9%, which is already quite attractive considering the small 1.2% yield offered by the S&P500 index. But there are some REITs with even higher returns AGNC investment‘S (NASDAQ: AGNC) return of no less than 14.9% today! But don’t jump on that excessive return; you’re probably better off with a 7% return Innovative industrial properties (NYSE: IIPR) or the 5.5% offered from VICI properties (NYSE:VICI). Here’s what you need to know.
AGNC Investment’s yield is a whopping 14.9%, which should probably give you more fear than excitement. The glaring question is: why is the dividend yield so shockingly high? The quick answer is that this mortgage REIT is a total return investment and not an income investment. A single graph is all you need to understand what really matters here.
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The orange line in the chart above is the dividend, which rose quickly but has been steadily declining for years. The purple line is the stock price, which actually followed the dividend: higher and then steadily lower. If you had used the dividend to pay living expenses, you would have had less income and less capital – a terrible outcome. However, look at the blue line, this is the total return. If you had reinvested the excessive dividend, you would have done much better in the end, because reinvesting the dividend more than offset the impact of the falling stock price. This isn’t your typical dividend stock.
Most dividend investors want to one day live off the dividends they receive, so AGNC Investment simply won’t be a good fit for such investors. The high yield simply won’t earn you much if you don’t put it all back into the stock.
If you’re willing to take on a little more risk to earn a higher return, which is reasonable to assume if you’re considering AGNC, you might want to look at Innovative Industrial Properties. Although the name is quite innocuous, this REIT focuses on owning marijuana-related assets. That does not entail low risk, although you can argue that it could be innovative. The REIT owns 108 properties across 19 states, with a heavy emphasis on marijuana cultivation facilities.
The legal status of marijuana is a bit up in the air, and that’s the risky aspect here. But the legal marijuana market has been growing and is expected to overtake the beer and spirits sector in size by 2028. So there is a solid business foundation. Innovative Industrial Properties’ (FFO) adjusted payout ratio was a reasonable 85% or so in the third quarter of 2024. That’s not low, but there’s still plenty of room for adversity before a dividend cut would be appropriate. It is notable that the dividend has been increased every year since 2017 (the REIT was only established in 2016). This appears to be a good risk/reward balance for those who can tolerate a bit of regulatory uncertainty.
