Finding attractive dividend yields while the S&P 500 index is offering a scant 1.2% yield is pretty hard, but it isn't impossible. One area to look at is real estate investment trusts (REITs), which as a group have a yield of 3.7%, using the Vanguard Real Estate Index ETF as an industry proxy.
But you can do even better than that if you are picky, and you don't have to give up yield to get great companies like Federal Realty(NYSE: FRT), NNN REIT(NYSE: NNN), or Realty Income(NYSE: O). Here's a look at each, including one that's a highly elite Dividend King.
1. Federal Realty is the (Dividend) King of REITs
A company has to increase its dividend every single year for 50 consecutive years to earn the Dividend King moniker. Federal Realty's streak is up to 57 years (and counting). It has the longest dividend streak of any publicly traded REIT. If you are trying to find a reliable dividend stock you could own forever, this is the one to look at today. And its dividend yield is just shy of 4%, which easily beats out the REIT average.
Image source: Getty Images.
What exactly does this reliable dividend stock do other than mint dividend checks? For starters, it owns strip malls and mixed-use developments. But what really sets it apart from its peers is its focus on quality over quantity. Where competitors often own hundreds of properties, Federal Realty likes to keep its portfolio at around 100 locations or so. These properties tend to be large and extremely well-located. The average population and income levels around its retail assets are far above the average for its niche.
On top of that, Federal Realty has a knack for buying older assets and ones with potential for expansion. The REIT then redevelops the properties to increase their value and the rents it can charge tenants. This core skill leads into another important aspect of Federal Realty's business -- it actively manages its portfolio.
When a property has reached its full potential, and management can extract a good price, it will be sold. The proceeds are used to start the process over again. Clearly, Federal Realty has a model that works and one that's worth owning if you like to hold stocks for decades.
2. NNN REIT is a relationship builder
Next up is NNN REIT, which has a dividend yield of roughly 4.9%, well north of the average REIT. And its streak of annual dividend increases is up to 35 years. You don't increase a dividend for three-and-a-half decades without doing something right. In this case, a key reason for the company's success is the relationships it has built over time.
Between 2007 and 2024, roughly 72% of NNN REIT's acquisitions have come from existing tenants. Those transactions also came with higher returns than the property purchases it made on the open market. Basically, NNN REIT's tenants know that they can go to the company and get a deal done with little to no hassle and they are willing to pay more for that certainty. It's a win/win/win, since investors benefit, too, in the form of a steadily growing dividend.
It helps that NNN REIT's target property type is the retail net lease. Net leases require tenants to pay for most property-level expenses, which reduces risk and cost for NNN REIT. And retail net lease properties tend to be fairly interchangeable, which makes it easier to buy, sell, and re-tenant them if there is a vacancy. All in, NNN REIT has a solid business model in an attractive niche -- if you are hoping to collect an above-average yield for years on end.
3. Realty Income is the net lease giant
Last up is Realty Income, which is also a net lease REIT. It has a dividend yield of 5.1% and has increased its dividend annually for 29 consecutive years. Although there's notable overlap between NNN and Realty Income, there's good reasons to buy them both.
For starters, NNN REIT is focused on U.S. retail assets. Realty Income's portfolio is spread across North America and, increasingly, Europe, providing geographic diversification to your high-yield portfolio. Also, Realty Income's property exposure includes retail (73% of rents); non-retail, which is largely industrial assets (around 17%); and a large "other" category, which includes casinos and vineyards. So you get to add in property type diversification, too.
However, the most attractive aspect of Realty Income is probably its size. Whereas NNN REIT has a market cap of nearly $9 billion, Realty Income is the net lease industry's largest name, weighing in at almost $54 billion. Add in an investment grade rated balance sheet and Realty Income tends to have advantaged access to capital markets, allowing it to compete aggressively for properties while still generating attractive returns.
Given its size, it can seal the deal on transactions that peers couldn't even consider (including single large properties, portfolio acquisitions, and even acting as an industry consolidator). If you don't mind just a little overlap in your dividend portfolio, Realty Income is a rock-solid dividend stock that you could comfortably pass on to your heirs.
Forever is a long time, but doable if you buy well
Whether you have $1,000, $10,000, or $100,000, these three high-yield stocks are all worth a deep dive. The key is the consistency of their dividend payments, which, in each case, are backed by a very strong business. They are the kinds of businesses that can keep paying you through thick and thin. Federal Realty is the "king" of the list for dividend reliability, but NNN REIT and Realty Income are no slouches. And all of them offer above-market and REIT-average yields.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,139!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,239!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $380,729!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 14, 2024
Reuben Gregg Brewer has positions in Federal Realty Investment Trust and Realty Income. The Motley Fool has positions in and recommends Realty Income and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
