The S&P 500 index is yielding a painfully low 1.2% today. You'd have to have a huge portfolio to generate enough income to live off of that dividend yield. But you can easily level that up to 4%, 4.8%, or even 5.6% without taking on huge amounts of investment risk. All you need to do is look at net lease real estate investment trusts (REITs) like Agree Realty(NYSE: ADC), NNN REIT(NYSE: NNN), and W.P. Carey(NYSE: WPC), all of which trade for less than $200 a share. But they are each just a little bit different, so here's a primer on each of them to make sure you pick the one that's best for you.
The one thing that brings them all together
Agree Realty, NNN REIT, and W.P. Carey all share one very important trait: They are all net lease real estate investment trusts. There are a few takeaways here. First off, REITs were specifically created to pass income on to shareholders. They avoid corporate-level taxation as long as they distribute at least 90% of their taxable income as dividends. Most distribute much more than that, thanks to the way depreciation is accounted for in generally accepted accounting principle (GAAP) earnings. But, at their very core, this trio of high-yield stocks is focused on paying you dividends.
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The second part of the equation here is the net lease focus. This is a particular niche in the REIT sector in which largely single tenant properties are leased to tenants that are contractually obliged to pay most property-level operating expenses. That reduces operating costs and business complexity for net lease REITs. And while it increases the risk of a vacancy at any given property, net lease REITs can offset that risk by having large portfolios. All in, large net lease REITs tend to be fairly low-risk investment options.
Why buy Agree Realty?
To get some basics out of the way up front, Agree Realty's dividend yield is roughly 4%. It has increased its dividend annually for about a decade. The dividend has been increased at an annualized rate of nearly 6% over that span. And it owns just over 2,200 properties with a focus on U.S. retail assets.
The really interesting fact here is the dividend growth rate, which is fairly good for a net lease REIT. And that explains why investors have afforded Agree a higher valuation than its peers, using dividend yield as a rough gauge of valuation. But, if you are looking for a strong growth and income stock, Agree should be on your radar screen.
Why buy NNN REIT?
NNN REIT's dividend yield is higher at 4.8%. The dividend has increased at a rate of around 3% over the past decade. Like Agree, NNN REIT focuses on U.S. retail properties, owning a portfolio of around 3,500 assets. But the really important number is the 35-year streak of annual dividend increases that NNN REIT has put up.
While NNN REIT isn't going to wow you with dividend growth, it has proven that it knows how to keep paying through good markets and bad. Note that the dividend didn't skip a beat even during the financially driven Great Recession. If consistency is what you are looking for, NNN REIT is going to be the kind of high-yield stock that lets you sleep well at night.
Why buy W.P. Carey?
The toughest name to appreciate on this list will be W.P. Carey. This net lease REIT cut its dividend at the start of 2024 but has since increased it in each of the two quarters following the cut. That gets the dividend back on the same increase path that it was on before the cut. The key is that the dividend cut was brought about by the company's purposeful exit from the office sector. It was a large enough move that W.P. Carey had no choice but to reset the dividend as it reset its business. But this negative is partly why the yield is a heady 5.6%.
In the long term, W.P. Carey is actually operating from a position of strength. Indeed, removing office assets from the portfolio has left the company with a record level of liquidity that it can now put to work investing in new properties that it likes better. It has plenty of ways to do so because W.P. Carey is one of the most diversified net lease REITs you can buy. Its portfolio includes warehouse, industrial, and retail assets (along with a fairly large "other" grouping), and it spans the United States and Europe. If you don't mind a very modest turnaround story, W.P. Carey will be for you. And you'll get to collect a large and growing dividend as it works to regain the trust of investors.
Time for a deep dive on these high-yield stocks
Don't give up on dividend stocks just because the S&P 500's yield is miserly. A little bit of effort can turn up some great high-yield stocks, even if you are working with just a little bit of capital. If you have $200, you can afford to buy Agree, NNN REIT, and W.P. Carey. Each has a unique appeal, but they all share a relatively low-risk and high-yield business approach.
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Reuben Gregg Brewer has positions in W.P. Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
