Updated on June 25th, 2021 by Bob Ciura
Investors looking to generate higher levels of income from their investment portfolios should take a look at Real Estate Investment Trusts, or REITs. These are companies that own real estate properties and lease them to tenants or invest in real estate backed loans, both of which generate a steady stream of income.
The bulk of their income is then passed on to shareholders, through dividends. You can see all 166 REITs here.
You can download our full list of REITs, along with important metrics such as dividend yields and market capitalizations, by clicking on the link below:
The beauty of REITs, for income investors, is that they are required to distribute 90% of their taxable income to shareholders annually, in the form of dividends. In return, REITs typically do not pay corporate taxes.
As a result, many of the 171 dividend-paying REITs we track offer high dividend yields of 5%+.
Bonus: Listen to our interview with Brad Thomas on The Sure Investing Podcast about intelligent REIT investing in the below video.
But not all high-yielding stocks are automatic buys. Investors should carefully assess the fundamentals to ensure the high yields are sustainable. This article will discuss 10 of the highest-yielding REITs around with market capitalizations above $1 billion.
Note that while the securities in this article have very high yields, a high yield alone does not make for a solid investment. Dividend safety, valuation, management, balance sheet health, and growth are all very important factors as well.
We urge investors to use the above article as informative, but to do significant due diligence before buying into any security – and especially high yield securities. Many (but not all) high yield securities have significant risk of a dividend reduction and/or deteriorating business results.
Table of Contents
You can instantly jump to any specific section of the article by using the links below:
- High-Yield REIT No. 10: Office Properties Income Trust (OPI)
- High-Yield REIT No. 9: New Residential (NRZ)
- High-Yield REIT No. 8: Arbor Realty Trust (ABR)
- High-Yield REIT No. 7: Blackstone Mortgage Trust (BXMT)
- High-Yield REIT No. 6: AGNC Investment Corp. (AGNC)
- High-Yield REIT No. 5: Apollo Commercial Real Estate Finance (ARI)
- High-Yield REIT No. 4: Global Net Lease (GNL)
- High-Yield REIT No. 3: Two Harbors Investment Corp. (TWO)
- High-Yield REIT No. 2: PennyMac Mortgage Investment Trust (PMT)
- High-Yield REIT No. 1: Annaly Capital Management (NLY)
High-Yield REIT No. 10: Office Properties Income Trust (OPI)
- Dividend Yield: 7.5%
Office Properties Income Trust is a REIT that currently owns 184 buildings, which are primarily leased to single tenants with high credit quality. The REIT’s portfolio currently has a 90.8% occupancy rate and an average building age of 17 years.
On 12/31/2018, the predecessor company – Government Properties Income Trust – merged with Select Income REIT (SIR) and the combined company was renamed Office Properties Income Trust. The aggregate transaction value was $2.4 billion, including the assumption of $1.7 billion of debt from SIR. The combined company has enhanced geographic diversification and one of the highest percentages of rent paid by investment–grade rated tenants in the REIT universe.
Source: Investor Presentation
After acquiring First Potomac Realty Trust (FPO) in 2017 and merging with SIR, OPI is now in the process of selling assets to reduce its leverage to a healthy level. In 2019, it sold nearly $1.0 billion of assets. It also sold $110 million of assets in 2020 and has divested $170 million of assets so far this year.
In late April, OPI reported (4/29/2021) financial results for the first quarter of fiscal 2021. Normalized funds from operations per share fell 9% over last year’s quarter, from $1.40 to $1.28, primarily due to asset sales. On the bright side, OPI maintained an average rent collection rate of 99%.
Nevertheless, due to some asset sales and the expiration of some leases, which will have an adverse effect on the results due to the downturn from the pandemic, we expect OPI to post significantly lower funds from operations this year.
OPI generates 65% of its annual rental income from investment-grade tenants. This is one of the highest percentages of rent paid by investment-grade tenants in the REIT sector. Moreover, U.S. Government tenants generate about 43% of total rental income and no other tenant accounts for more than 3% of annual income. This exceptional credit profile constitutes a meaningful competitive advantage.
On the other hand, OPI has greatly increased its debt load after its latest acquisition. Its net debt is excessive, as it stands at $2.2 billion, which is about 9 times the annual funds from operations and twice as much as the current market capitalization of the REIT.
High-Yield REIT No. 9: New Residential (NRZ)
- Dividend Yield: 7.6%
New Residential Investment Corporation is a real estate investment trust that invests in Excess Mortgage Servicing Rights (MSRs), real estate securities, residential mortgage loans, consumer loans, and other real estate-related securities. The REIT is focused on the residential real estate market. New Residential was founded in 2013 as a spin-off of Newcastle Investment Corporation, and is headquartered in New York, NY.
Source: Investor Presentation
New Residential reported its first-quarter earnings results on May 5th. Revenue of $1.2 billion soared 530% year-over-year, mainly due to a very easy comparison with the pandemic and the impact of the market selloff in the year-ago quarter.
Core/adjusted earnings–per–share totaled$0.34 for the first quarter, up from $0.32 year-over-year. Following the troubles in early 2020, which caused a significant decline in New Residential’s book value and forced the company to cut its dividend, New Residential was able to stabilize its book value over the last couple of quarters.
The company also was able to increase its dividend from $0.15 per share to $0.20 per share following the steep dividend cut earlier in the year, although that is still well below the levels from before the pandemic. Due to the asset sales during the peak of the crisis, profitability will likely remain below the levels seen in previous years for the foreseeable future.
New Residential is not a typical mortgage REIT, as it is primarily active in the mortgage servicing rights (MSR) field. Mortgage servicing rights are paid by financial institutions that do not want to handle the mortgage loan, and that outsource the back office work in exchange for a certain amount of the unpaid principal balance of such loans. These MSRs are partially paid to the licensed mortgage service that gets the basic servicing fees, but a part of the MSR can be sold to other parties such as New Residential.
This approach has worked out very well for New Residential and its shareholders in recent years. However, it will likely get harder for the company to find the assets it seeks as less housing starts, and lower mortgage originations will limit the size of the asset base New Residential can invest in. This will likely make it harder to make accretive asset purchases during the coming years, which is why our growth estimate is relatively low.
One positive note is that after the dividend cut, New Residential has a projected 2021 dividend payout ratio of 53%, which has significantly boosted the coverage of the dividend.
High-Yield REIT No. 8: Arbor Realty Trust Inc. (ABR)
- Dividend Yield: 7.6%
Arbor Realty Trust is a nationwide mortgage real estate investment trust that acts as a direct lender and operates in two reporting segments: Agency Business and Structured Business. The trust provides loan origination and servicing for multifamily, seniors housing, healthcare, and other diverse commercial real estate assets.
Arbor Realty’s specific focus is government–sponsored enterprise products, although its platform also includes commercial mortgage–backed securities (CMBS), bridge and mezzanine loans, and preferred equity issuances.
Source: Investor Fact Sheet
On May 7th, 2021, Arbor Realty reported financial results for the first quarter of fiscal 2021. Management reported net interest income of $49 million, $10.4 million higher than the recorded $38.5 million net interest income last year. Q1 agency business revenue decreased from $125.6 million in Q4 2020 to $89.3 million.
As of March 31st, Arbor Realty had a fee–based servicing portfolio of $25.5 billion which is 3.4% higher than its December 31, 2020 record. Total loan sales of $1.84 billion decreased to $1.84 billion from $2.42 billion in the year–ago period. Mortgage servicing rights revenue and servicing revenue stood at $36.9 million and $15.5 million respectively.
The trust also continues to enjoy a strong performance from its residential mortgage banking joint venture, generating pretax income of $22.5 million.
Meanwhile, the cash dividend on common stock was raised to $0.34 making it their fourth consecutive quarterly increase. The trust originated 55 loans from the structured business segment, totaling $1.1 billion.
High-Yield REIT No. 7: Blackstone Mortgage Trust (BXMT)
- Dividend Yield: 7.7%
Blackstone Mortgage Trust is a real estate finance company primarily involved in the origination and purchase of senior loans collateralized by commercial properties in North America and Europe.
The vast majority of the company’s asset portfolio is comprised of floating rate loans secured by first priority mortgages primarily derived from office, hotel, and manufactured housing properties. A significant percentage of the collateralized real estate properties are located in New York, California, and the United Kingdom.
Blackstone Mortgage Trust is managed by a subsidiary of The Blackstone Group and benefits from the market data provided by its parent company.
Source: Earnings Slides
Blackstone Mortgage Trust reported Q1 results on April 28th. Distributable earnings per share declined 10% to $0.54 from $0.60 sequentially. Book value per share is at $26.35. At the end of the quarter, BXMT reported liquidity of $1.1 billion.
Meanwhile, the trust in Q1 closed $1.7 billion of new loans, producing almost $700 million of portfolio growth to a record $18.7 billion at quarter end and exceeding the 2020 total originations. The trust also reported that 92% of its loans are backed by assets in industrial, multifamily, and life sciences sectors.
Blackstone Mortgage Trust’s competitive advantages clearly stem from its scale as one of the largest commercial mortgage REITs, as well as its age (founded in 1966), which have enabled it to build up a long track record.
Additionally, the network it shares with its parent Blackstone – a global asset management giant – and the name brand and relationships that come with it give it access to deal flows that many of its peers do not have. Not to mention, the cross-industry expertise, global macro insight, and scale of capital that can lead to outperforming risk-adjusted returns over time.
As the last recession illustrated, Blackstone Mortgage Trust’s business is not recession-resistant. Though the company and the mortgage industry have taken steps to improve their underwriting practices to make such an occurrence unlikely to occur again, this is not the best stock to hold when a downturn hits the commercial real estate markets in which it operates.
At the same time, however, we do believe that Blackstone’s conservatively financed portfolio (average loan to value ratio is in the low-60% area currently and the portfolio is 100% performing) will prevent it from experiencing deep losses in the event of a slowdown, and the long-term trend will remain upward.
High-Yield REIT No. 6: AGNC Investment Corp. (AGNC)
- Dividend Yield: 8.4%
AGNC was founded in 2008, and is an internally-managed REIT. Whereas most REITs own physical properties that are leased to tenants, AGNC has a different business model. It operates in a niche of the REIT market: mortgage securities.
AGNC invests in agency mortgage-backed securities. It generates income by collecting interest on its invested assets, minus borrowing costs. It also records gains or losses from its investments and hedging practices.
The trust employs significant amounts of leverage to invest in these securities in order to boost its ability to generate interest income. AGNC borrows primarily on a collateralized basis through securities structured as repurchase agreements.
AGNC reported its Q1 2021 results on April 26th, 2021. Net spread and dollar roll income per share stood at 76 cents. Partially responsible for this success was AGNC’s forward purchase and sales of agency MBS in the TBA market that brought the average net long position to $32.0 billion.
A more detailed breakdown of AGNC’s first-quarter performance can be seen in the image below:
Source: Investor Presentation
The company’s net book value per common share also showed an increase from $16.71 on December 31, 2020 to $17.72 as of March 31, 2021. The 36 cents in dividends per common share and the $1.01 increase in TNBV per common share generated an 8.2% economic return on tangible common equity for Q1.
AGNC’s hedge portfolio, mainly comprised of intermediate and longer–term hedges, also contributed to the company’s positive results this quarter.
AGNC is a monthly dividend stock.
It has declared monthly dividends of $0.12 per share since April 2020. This means AGNC has a 7.9% dividend yield. AGNC has reduced its dividend several times over the past decade, and again in 2020.
We do not see a dividend cut as an imminent risk at this point given that the payout was fairly recently cut to account for unfavorable interest rate movements, and that AGNC’s net asset value appears to have stabilized. Management has taken the necessary steps to protect its interest income, so we don’t see another dividend cut in the near term.
High-Yield REIT No. 5: Apollo Commercial Real Estate Finance (ARI)
- Dividend Yield: 8.5%
Apollo Commercial Real Estate Finance, Inc. was founded in 2009. It is a real estate investment trust (REIT) that invests in debt securities including senior mortgages, mezzanine loans, and other commercial real estate-related debt. Apollo’s investments, placed in the U.S. and Europe, are collateralized by the underlying estate properties. Apollo is externally managed by ACREFI Management, LLC, an indirect subsidiary of Apollo Global Management, LLC.
Apollo Commercial Real Estate Finance holds a multi-billion dollar commercial real estate portfolio consisting of Hotels, Office Properties, Urban Pre-development, Residential-for-sale inventory, and Residential-for-sale construction. The company’s portfolio is split up between Manhattan, New York, the United Kingdom, and the remainder of the U.S.
Source: Earnings Slides
On April 22nd, 2021, Apollo announced Q1 results. GAAP earnings per share came in at $0.39, up from $0.36 in Q4 2020. Net interest income came in at $71 million, up from $68.6 million sequentially. Net income available to common stockholders was $0.37.
Book value per share decreased to $15.35 from $15.38 sequentially. Gross add–on fundings stood at $133 million. Meanwhile, Apollo held 67 loans with a carrying value of ~$6.8 billion and committed $528 million to two new mortgage loans, receiving $175 million of full repayments in Q1.
Apollo’s two main growth catalysts are growth of its overall loan portfolio, and higher investment returns from existing loans. Apollo has an exceptionally high dividend yield, but it also has a high dividend payout ratio that investors should closely monitor going forward.
The company has frequently distributed over 100% of annual earnings. While payout ratios greater than 100% are possible when cash flows exceed earnings – as is the case with Apollo – this significantly limits the company’s safety in lesser times. This is often the case with extreme high-yielders and will make it hard for them to grow accretively through issuing more common shares. As a result, their earnings-per-share trajectory will largely be subject to interest rate levels.
During the Great Recession, Apollo posted a net loss in 2009, reflecting its sensitivity to recessions and downturns in commercial real estate activity. As a result, investors should only hold it in a broadly-diversified portfolio.
High-Yield REIT No. 4: Global Net Lease (GNL)
- Dividend Yield: 8.8%
Global Net Lease is a Real Estate Investment Trust (REIT) investing in commercial properties in the U.S and Europe, with an emphasis on sale-leaseback transactions. The company owns over 300 properties. Office properties are the largest sector, with industrial / distribution making up a very large portion of the portfolio as well, while retail rounds out the remainder.
Source: Earnings Slides
On May 6th, 2021 Global Net Lease reported Q1 results. Revenue for the quarter increased by 12.8% from $79.2 million in the year–ago period to $89.4 million. Core FFO stood at $38.9 million. The portfolio was 99.7% leased with 8.3 years weighted average remaining lease term, reflecting a very healthy underlying business model.
Moreover, the company collected 100% of first quarter cash rents, including 100% from the top 20 tenants. GNL also boasted liquidity with cash and cash equivalents of $262.9 million. In total, the company increased industrial/distribution assets by 49% year–over–year based on annualized straight–line rent.
At first glance, Global Net Lease appears to be a reasonable REIT with a broadly diversified pool of tenants, including well-established names like FedEx, U.S. Customs, ING Bank, and Family Dollar, diversified across countries and continents. However, there are a variety of underlying concerns, especially as it relates to potential growth.
General concerns include potential conflicts of interest due to being externally managed by AR Global Investments (which invests for other entities), the office space industry requiring increased capex, and categorizing some of its tenants as investment grade using an “implied” credit model.
Global Net Lease pays out effectively all of its AFFO in the form of cash dividends. As such, future growth cannot be fueled by internal funds and instead require additional debt or share dilution. Even if the company continues to increase total AFFO, the real test will be whether or not AFFO-per-share can increase.
Global Net Lease maintains a reasonable capital structure, though it carries a sizable amount of preferred equity in addition to debt. Global Net Lease is adhering to a near 100% payout ratio and thus has to issue shares in good times, which makes us skeptical of the company’s performance during industry downturns.
High-Yield REIT No. 3: Two Harbors Investment Corp. (TWO)
- Dividend Yield: 8.8%
Two Harbors Investment Corp. focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS), non-agency securities, mortgage servicing rights, and other financial assets in the United States.
Its target assets include agency RMBS collateralized by fixed rate mortgage loans, adjustable rate mortgage loans, and hybrid adjustable-rate mortgage (ARMs); non-agency securities collateralized by prime mortgage loans, Alt-A mortgage loans, pay-option ARM loans, and subprime mortgage loans; and other assets, such as financial and mortgage-related assets, as well as residential mortgage loans and non-hedging transactions.
Two Harbors Investment Corp. was incorporated in 2009 and is headquartered in New York, New York.
Source: Earnings Presentation
In the 2021 first quarter, quarterly earnings–per–share came in at $0.24, down from $0.30 per share in Q4 2020. Book value per share decreased to $7.29 from $7.63 on December 31, 2020. Two Harbors settled a $21.3 billion unpaid principal balance of MSR through its MSR flow–sale program, closed on another $1.1 billion UPB of MSR and executed term sheets on another $7.2 billion UPB of MSR bulk purchase.
The company’s total portfolio of $18.6 billion as of March 31 fell from $21.8 billion on December 30, 2020. Annualized yield for the aggregate portfolio during the quarter was 1.65% compared with 1.76% in Q4 2020, while Q1 servicing income for the quarter stood at $107.1 million from $100.5 million in Q4 2020. Meanwhile, the company’s Q1 common stock dividend stood at $0.17 per share.
Looking ahead, the company is combining Agency RMBS and MSR which it believes will generate mid-double digits at a lower risk. Meanwhile, their discounted legacy non-Agencies continue to benefit from residential tailwinds that support strong total returns. Baseline returns to lower priced bonds will come in the high single digits and upside price appreciation can drive total returns in low-to-mid double digits.
As deeply discounted legacy non-Agency securities realize their upside potential, management expects to recycle capital into the best market opportunities available at the time.
High-Yield REIT No. 2: PennyMac Mortgage Investment Trust (PMT)
- Dividend Yield: 9.0%
PennyMac Mortgage Investment Trust is a specialty REIT that invests in residential mortgage loans and mortgage-related assets. PMT is managed by PNMAC Capital Management, LLC, a subsidiary of PennyMac Financial Services, Inc. (PFSI).
PMT believes it will generate long-term growth alongside a large (and growing) addressable market in its core industry.
Source: Investor Presentation
In the 2021 first quarter, PMT generated net income of $65.4 million, or $0.67 per common share on a diluted basis for the first quarter of 2021, on net investment income of $201.4 million. Book value increased 3% to $20.90 per share as of the end of the first quarter, compared with the end of 2020.
The company has a mixed performance record in recent years. It was negatively impacted by the coronavirus pandemic last year, and cut its 2020 first quarter dividend by 47%. Fortunately, the company has seen its financial performance bounce back, and its dividend has been restored to its pre-pandemic level.
At an annualized rate of $1.88 per share, PMT has a high yield of 9%, but investors should be mindful that the company is highly sensitive to changes in the economy. Another recession would likely jeopardize the dividend payout.
High-Yield REIT No. 1: Annaly Capital Management (NLY)
- Dividend Yield: 9.6%
Annaly Capital Management, Inc., a diversified capital manager, invests in and finances residential and commercial assets. The company invests in various types of agency mortgage-backed securities, non-agency residential mortgage assets, and residential mortgage loans.
It also originates and invests in commercial mortgage loans, securities, and other commercial real estate investments. Annaly provides financing to private equity-backed middle market businesses, and operates as a broker-dealer.
Source: Earnings Presentation
Annaly delivered a 2.8% quarterly economic return driven by core earnings–per–share of $0.29 compared to $0.30 in Q4 2020. Economic leverage stood at 6.1x, down from the prior quarter. Book value per common share stood at $8.95, up $0.03 from $8.92 sequentially.
Net interest margin, excluding PAA, stood at 1.91% against 1.98% in Q4 2020 while Q1 net interest spread, excluding PAA, stood at 1.84% from 1.93% the prior quarter. Meanwhile, GAAP net income came in at $1.23 per average common share for the quarter.
The advantage Annaly has over some of its mortgage REIT competitors is diversification of income streams, providing it the opportunity to pivot depending on the circumstance. That said, Annaly is very interest rate sensitive and just as it was able to benefit from the drop in interest rates through larger spreads during the last recession, it is now being challenged by increasing interest rates and compression of spreads.
Although it is less leveraged than others in the sector, we have concerns that Annaly is using more leverage to generate results and issuing additional shares to drive capital expansion, rather than growing based on increased profitability.