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Investors looking to generate higher income levels from their investment portfolios should 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.
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 200+ REITs we track offer high dividend yields of 5%+.
But not all high-yielding stocks are automatic buys. Investors should carefully assess the fundamentals to ensure that high yields are sustainable.
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 also very important factors.
We urge investors to use the analysis below as informative but to do significant due diligence before buying into any security – especially high-yield securities. Many (but not all) high-yield securities have a significant risk of a dividend reduction and/or deteriorating business results.
High-Yield REIT No. 10: Ares Commercial Real Estate (ACRE)
Dividend Yield: 13.5%
Ares Commercial Real Estate Corporation is a specialty finance company primarily engaged in originating and investing in commercial real estate (“CRE”) loans and related investments. ACRE generated around $198.6 million in interest income last year.
The company’s loan portfolio (98% of which are senior loans) comprises 47 market loans across 8 asset types, with an outstanding principal balance of $2.2 billion. The majority of the loans are tied to multifamily, office, and mixed-use properties. In terms of geographical diversification, ACRE’s exposure features a healthy mix between the Southeast, West, and Midwest.
On February 22nd, 2024, ACRE reported its Q4 and full-year results for the period ending December 31st, 2023. Interest income came in at $44.2 million, 16% lower year-over-year. The decline was due to the company’s loans struggling to perform as higher rates of inflation and certain cultural shifts such as work-from-home trends continue to impact the operating performance and the economic values of commercial real estate.
High-Yield REIT No. 9: Generation Income Properties (GIPR)
Dividend Yield: 13.7%
Generation Income Properties, Inc. is an internally managed REIT focused on acquiring and managing income-producing retail, office, and industrial properties. As of September 30th, 2023, the company’s asset base included 26 properties, comprising one industrial, 18 retail (including one medical-retail), and seven office properties, which are net leased to high-quality tenants in major markets throughout the United States.
These properties, along with a 36.8% tenancy in common interest in a single tenant retail building (approximately 15,300 square feet) leased to La-Z-Boy Company, feature 338,142 leasable square feet and an annualized base rent of $8.64 million.
High-Yield REIT No. 8: Brandywine Realty Trust (BDN)
Dividend Yield: 13.8%
Brandywine Realty owns, develops, leases and manages an urban town center and transit-oriented portfolio which includes 163 properties in Philadelphia, Austin and Washington, D.C. The REIT has a market capitalization of $1.1 billion and generates 74% of its operating income in Philadelphia, 22% of its operating income in Austin and the remaining 4% in Washington, D.C.
In early February, Brandywine Realty Trust reported (2/1/24) financial results for the fourth quarter of fiscal 2023. Its occupancy fell sequentially from 88.3% to 88.0% and its funds from operations (FFO) per share fell -7%, from $0.29 to $0.27. It was the fifth consecutive quarter in which the impact of high interest rates on interest expense was evident. Interest expense grew 27% year-over-year.
High-Yield REIT No. 7: Two Harbors Investment Corp. (TWO)
Dividend Yield: 14.0%
Two Harbors Investment Corp. is a residential mortgage real estate investment trust (mREIT). As such, it focuses on residential mortgage-backed securities (RMBS), residential mortgage loans, mortgage servicing rights, and commercial real estate. The trust derives nearly all of its revenue in the form of interest through available-for-sale securities.
Two Harbors Investment Corp. released its financial results for the fourth quarter of 2023 on January 29, 2024. The period was marked by volatility in the mortgage market, with mortgage spreads and implied volatility remaining positively correlated to interest rates. The company reported a comprehensive income of $38.9 million, equating to $0.40 per weighted average share. This performance reflected a significant reversal from the previous quarter’s comprehensive loss of $56.8 million, or $0.61 per weighted average share.
The book value per share stood at $15.21 at the end of December 2023, slightly down from $15.36 at the end of the previous quarter, indicating a modest economic return on book value of 2.0% for the quarter.
High-Yield REIT No. 6: AGNC Investment Corp. (AGNC)
Dividend Yield: 15.0%
American Capital Agency Corp is a mortgage real estate investment trust that invests primarily in agency mortgage–backed securities (or MBS) on a leveraged basis.
The firm’s asset portfolio is comprised of residential mortgage pass–through securities, collateralized mortgage obligations (or CMO), and non–agency MBS. Many of these are guaranteed by government–sponsored enterprises.
AGNC Investment Corp. announced its fourth quarter 2023 financial results on January 22, 2024, reporting a comprehensive income of $1.00 per common share, including $0.57 net income and $0.43 other comprehensive income per share.
The quarter saw a $0.60 net spread and dollar roll income per common share and ended with a tangible net book value of $8.70 per share. The quarter’s dividends were declared at $0.36 per share, contributing to a 12.1% economic return on tangible common equity. The investment portfolio was valued at $60.2 billion, with a leverage of 7.0x tangible net book value.
High-Yield REIT No. 5: ARMOUR Residential REIT (ARR)
Dividend Yield: 14.9%
As an mREIT, ARMOUR Residential invests in residential mortgage-backed securities that include U.S. Government-sponsored entities (GSE) such as Fannie Mae and Freddie Mac. It also includes Ginnie Mae, the Government National Mortgage Administration’s issued or guaranteed securities backed by fixed-rate, hybrid adjustable-rate, and adjustable-rate home loans.
Unsecured notes and bonds issued by the GSE and the US Treasury, money market instruments, and non-GSE or government agency-backed securities are examples of other types of investments.
On October 25, 2023, ARR announced its Q3 2023 results and financial position as of September 30, 2023. Following a one-for-five reverse stock split completed on September 29, 2023, the company reported a loss of $(182.2) million or $(3.92) per common share.
Net interest income stood at $3.6 million, and distributable earnings available to common stockholders were $50.2 million, equating to $1.08 per common share. The asset yield was 4.65%, and after deducting the net cost of funds of 2.92%, the net interest margin was 1.73%.
High-Yield REIT No. 4: Ellington Residential Mortgage REIT (EARN)
Dividend Yield: 16.4%
Ellington Residential Mortgage REIT acquires, invests in, and manages residential mortgage and real estate related assets. Ellington focuses primarily on residential mortgage-backed securities, specifically those backed by a U.S. Government agency or U.S. government–sponsored enterprise.
Agency MBS are created and backed by government agencies or enterprises, while non-agency MBS are not guaranteed by the government.
On November 7th, 2023, Ellington Financial reported its Q3 results for the period ending September 30th, 2023. Due to the company’s business model, Ellington doesn’t report any revenues. Instead, it records only income. For the quarter, gross interest income came in at $96.2 million, up 9.2% quarter-over-quarter.
Adjusted (previously referred to as “core”) EPS came in at $0.33, five cents lower versus Q2-2023. The decline was mainly due to higher professional fees.
High-Yield REIT No. 3: Ellington Financial (EFC)
Dividend Yield: 14.6%
Ellington Financial Inc. acquires and manages mortgage, consumer, corporate, and other related financial assets in the United States. The company acquires and manages residential mortgage–backed securities (RMBS) backed by prime jumbo, Alt–A, manufactured housing, and subprime residential mortgage loans.
Additionally, it manages RMBS, for which the U.S. government guarantees the principal and interest payments. It also provides collateralized loan obligations, mortgage–related and non–mortgage–related derivatives, equity investments in mortgage originators and other strategic investments.
On November 7th, 2023, Ellington Financial reported its Q3 results for the period ending September 30th, 2023. Due to the company’s business model, Ellington doesn’t report any revenues. Instead, it records only income. For the quarter, gross interest income came in at $96.2 million, up 9.2% quarter-over-quarter. Adjusted (previously referred to as “core”) EPS came in at $0.33, five cents lower versus Q2-2023. The decline was mainly due to higher professional fees.
High-Yield REIT No. 2: Orchid Island Capital Inc (ORC)
Dividend Yield: 17.5%
Orchid Island Capital, Inc. is an mortgage REIT that is externally managed by Bimini Advisors LLC and focuses on investing in residential mortgage-backed securities (RMBS), including pass-through and structured agency RMBSs. These financial instruments generate cash flow based on residential loans such as mortgages, subprime, and home-equity loans.
On February 2, 2024, Orchid Island Capital disclosed its financial outcomes for the fourth quarter of 2023 amidst a turbulent market environment. The company reported a net income of $0.52 per share and observed a 2% increase in its book value, reaching $9.10.
Additionally, a dividend of $0.36 per share was declared and paid, reflecting a total return of 6.05% for the quarter. Orchid Island Capital undertook strategic adjustments to its investment portfolio during this period.
High-Yield REIT No. 1: Global Net Lease (GNL)
Dividend Yield: 17.4%
Global Net Lease invests in commercial properties in the U.S. and Europe with an emphasis on sale-leaseback transactions. GNL’s portfolio includes over 1300 properties, spanning nearly 67 million square feet with a gross asset value of $9.2 billion.
The portfolio is over 96% leased with a weightedaverage remaining lease term of 6.9 years. Geographically, 81% of the straight-line rent is from North America, and 19% from Europe. The portfolio features an average annual rental increase of 1.3%, with 58% of tenants having an investment grade or implied investment grade credit rating.
Global Net Lease reported its third-quarter earnings for 2023 on November 8, 2023. GNL recorded revenue of $118.2 million and a net loss attributable to common stockholders of $142.5 million. Core FFO was $31.5 million or $0.24 per share, and AFFO was $46.9 million or $0.36 per share. The financials were impacted by one-time costs related to the merger and internalization, including settlement costs, equity-based compensation, and transaction costs.
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