Currently, the average real estate investment trust (REIT) dividend yield is about 3.8%. This is much higher than S&P 500 Index1.2%.
But you can still do better. Real estate leader real estate income (NYSE: O) The yield is 6.1%. Here's what you need to know, and why now is a good time to put $2,000 or more into this high-yield REIT.
Real Estate Income is a net lease REIT. This means its tenants are responsible for paying most property-level operating costs. Although almost all properties are single-tenant (meaning the risk is high if a tenant leaves), in a large enough portfolio the risk is fairly low. The REIT is the largest player in the net lease space, with more than 15,400 properties.
However, other than the size of real estate revenue, there's not much that sets it apart when you look at the individual metrics. For example, WP CareyThe second largest net lease REIT with a dividend yield of 6.5%.
Meanwhile, Realty Income's dividend growth has averaged about 4.3% per year over time, compared with peers Agree real estate Over the past decade, its dividend has increased by about 6%. As for dividend growth streak, Realty Income lags in growth for 30 consecutive years NNN REITAlready 35 years old.
Even Realty Income's overall approach to its portfolio isn't unique. It has a number of assets in the "other" category in the retail and industrial sectors. It has investments domestically and in Europe. WP Carey does exactly that.
Ultimately, you may find that net lease REITs outperform real estate income on any single metric you like. What sets it apart is its size (with a market capitalization of $45 billion, it's nearly four times the size of its next closest peer) and the fact that it performs well on a number of different industry metrics, even if it's not Real estate investment trusts that perform best on a specific metric.
At the end of the day, real estate income is a fundamental investment. This is a reliable company that tends to perform reasonably well year after year. You won't brag about it at cocktail parties, but you'll be glad you have it in your portfolio and send you attractive dividend checks every month.
You can reinvest these dividends to fuel your growth. Alternatively, you can use the cash to pay for living expenses, since monthly dividends are the closest substitute for a salary you can get.
One more thing: Size in the net lease industry matters. A net lease is typically a financing transaction from the seller, which is usually an operating business such as a retailer or manufacturer.
The seller needs to raise cash for one reason or another (to fund growth or strengthen the balance sheet), and doing a sale and leaseback is often cheaper than issuing equity or selling debt. Realty Income's scale and financial strength (with an investment-grade balance sheet) make it a well-established and reliable partner in these types of transactions.
But REITs pay out most of their earnings in the form of dividends, so they must source cash from the capital markets when making acquisitions. Large scale and financial strength means Real Estate Income can raise growth capital at attractive rates.
This in turn results in generally lower costs of capital. As a result, it can make profitable trades that its peers cannot. And it can take on larger transactions than most of its peers can handle. In fact, having strong overall business metrics coupled with the size of its real estate revenue does make it stand out in important ways.
If you need or just want a reliable source of income, real estate income can meet your needs. It can give you a good night's sleep while earning a dividend yield that's well above the market average (and above the REIT average).
It's hard to complain about the combination of positives this REIT has to offer. But perhaps the most attractive fact right now is that the dividend yield is near a 10-year high, which suggests Realty Income is currently selling.
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Reuben Gregg Brewer is with Realty Income and WP Carey. The Motley Fool has an interest in and recommends Realty Income. The Motley Fool has a disclosure policy.
The Best High-Yield REITs to Invest $2,000 Now Originally Posted by The Motley Fool