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Our Top 6 High Yield REITs After Friday's Selloff

This members only report is a continuation of our free report title Top 12 High Yield REITs After Friday’s Selloff. Without further ado, here are the top 6 on our list (#7-12 are available in our fee report).

6. Starwood Property Trust

Starwood Property Trust (STWD) is a big dividend (8.6%) mortgage REIT that could actually benefit from an uptick in market turmoil. Further, we believe Starwood inappropriately sold off on Friday (it was down more than 3%) because it was incorrectly lumped in with other big-dividend payers that sold off when the Fed suggested it may raise rates sooner than expected. You can read our full, members-only, Starwood report here…

5. Ventas, Inc.

Ventas (VTR) is a healthcare REIT with a diversified investment portfolio, an attractive dividend yield (4.2%), and the winds of an enormous demographic trend at its back. The dividend is very safe, and despite Friday’s big 5.7% selloff, we believe this REIT has many years of continued growth ahead. You can read our full Ventas report here…

4. Chatham Lodging Trust

Chatham Lodging Trust (CLDT) is a big dividend (6.9%) hotel REIT that declined 4.6% on Friday and is now down 1.5% year-to-date on a total return basis. Hotel REITs in general have underperformed other REITs this year due in large part to their higher volatility and perceived risk of a slowing economy. And unlike other REITs (that often exhibit low volatility/risk) hotel REITs tend to have higher betas and are more sensitive to the ups and downs of the market. However, in the case of Chatham, many of the properties are located in prime locations that should continue to thrive regardless of market conditions. You can read our full report on Chatham Lodging Trust here…

3. New Residential Investment Corp

New Residential Investment Corp (NRZ) is a huge dividend (13.1%) residential REIT, and its price was down 2.8% on Friday as the market sold off. NRZ emerged in the mortgage servicing space following the financial crisis as banks had to shed risk and the mortgage markets became more complex. Its secret sauce is its mortgage servicing rights, and we believe the business can continue far into the future. We own NRZ in our Blue Harbinger Income Equity strategy, and you can read our full report on NRZ here…

2. EastGroup Properties

EastGroup Properties (EGP) offers an attractive yield (3.5%) and its price was down 4.6% on Friday as the market sold off. EGP is a blue chip, prime location, industrial REIT and it’s big dividend is relatively very safe. And as interest rates stay low for longer, we believe more income-hungry investors will “discover” EastGroup. It operates across the US sunbelt markets (including Florida, Texas, Arizona, Mississippi, and North Carolina). EastGroup competes on location (not rent), and clusters properties around a variety of transportation features. EastGroup has increased or maintained its dividend for 23 consecutive years (they’ve increased it in 20 of the last 23 years, and each of the last four years). If you are looking for lower-risk attractive dividend payments, EastGroup is worth considering. We own it in our Blue Harbinger Income Equity portfolio.

1. Omega Healthcare

Investor fear over potential healthcare law changes have caused valuations for skilled nursing facility REITs (such as Omega Healthcare, OHI) to fall far behind the valuations of other REITs. For example, the following chart shows OHI’s Price-to-FFO ratio (funds from operations) relative healthcare REIT peers that are less exposed to skilled nursing facilities).

We believe the market is overly pessimistic, and underappreciating the enormous demographic tailwind at Omega’s back (i.e. the population is growing, as is the need for skilled nursing facilities). Omega is very profitable consistently growing its net income and trading at only 10.5 times its forward funds from operations. It also easily covers its dividend payments with an AFFO payout ratio of less than 85%, and a FAD (funds available for distribution) payout ratio of less than 90%.

With artificially low interest rates around the globe, investors have bid up the price of most lower-risk higher-dividend equities, however OHI has lagged other investments in this category due to an overly fearful investor base. We believe Omega is underappreciated, and its price will increase as investors get sick of chasing other REITs with rich valuations. We own OHI in our Income Equity portfolio.

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