Kevin Brown: With a requirement to pay out 90% of their net income as a dividend, REITs are highly sought after investments for income-oriented investors. However, dividend yields are quite variable across the sector, so finding an attractive investment with a high, safe dividend combined with the potential for outperforming the market presents a unique challenge. We want to highlight some large-cap REITs that provide both a high yield and the potential for positive returns.
First, we like the big three healthcare REITS: HCP, Ventas, and Welltower. All three are currently providing dividend yields in the mid-5s and are trading below our fair value estimates for the companies. Dividends for all three companies are well covered by current cash flows, they have an established history of raising their dividend each year, and even during the uncertainty of the great financial crisis they maintained or raised their dividend.
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Kevin Brown does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.