Investors seeking higher dividend yields in 2025 can consider real estate investment trusts (REITs), which are legally required to pay dividends. Some selected REITs yield 10% or more, significantly surpassing the current average of 3% for the real estate sector, as represented by the Real Estate Select Sector SPDR (XLRE).
High-yield REITs to explore for 2025 dividends
The average yield among a chosen group of seven REITs is 12.4%, which is over four times the sector average. This level of income could potentially allow investors to retire on dividends alone. However, REITs face challenges heading into 2025. The Federal Reserve’s three interest rate cuts in 2024 provided a boost to the real estate sector, and equity REITs have started issuing new shares for capital fundraising. Nevertheless, the Fed has moderated its expectations for 2025 cuts, signaling a reduction of only half a percentage point after previously indicating a one-point cut.
Community Healthcare Trust (CHCT) offers a yield of 10.4% and manages around 200 properties across 35 states, leased to 315 tenants. The trust has a history of increasing dividends quarterly for 37 consecutive quarters. However, CHCT’s funds from operations (FFO) have dipped below 2020 levels, affected by tenant issues, including the bankruptcy of GenesisCare in 2023, which complicated leasing agreements. Although recent rate cuts could improve CHCT’s cost of capital, dividend coverage may tighten temporarily.
Global Medical REIT (GMRE), with a yield of 10.8%, owns 187 medical facilities, maintaining an occupancy rate of over 96%. Despite experiencing tenant issues, including the bankruptcy of Pipeline Health System and a 10% drop in stock value since then, GMRE signed a long-term lease on a major property and executed acquisitions throughout 2024. The dividend is under scrutiny as GMRE currently has a 93% payout ratio against projected adjusted FFO of 90 cents per share.
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Innovative Industrial Properties (IIPR) also yields 10.8% and specializes in the cannabis industry, owning 108 properties in 19 states, leased to 30 tenants. The company’s shares fell significantly after poor revenue reports and tenant default issues in 2024, particularly involving PharmaCann, which defaulted on rent obligations for several properties. There remains concern regarding IIPR’s viability following a dramatic valuation drop of 70% since its peak.
Brandywine Realty Trust (BDN), with an 11.1% yield, has diversified from office-focused properties to a hybrid model with assets in Philadelphia and Austin. After a difficult 2023, BDN performed well in 2024, with promising projects in its pipeline. The trust trades at 6 times next year’s FFO estimates, with improved dividend coverage post-dividend cut.
Global Net Lease (GNL) offers a substantial yield of 15.3%, managing 1,223 properties leased to 723 tenants across 11 countries. Despite its high yield, GNL reduced its dividend significantly since 2020, implementing cuts even in 2024. It is focused on reducing leverage by divesting approximately $1 billion in properties through 2024 and 2025, though its sensitivity to interest rates poses risks ahead.
Mortgage REITs (mREITs) also provide high yields. New York Mortgage Trust (NYMT), with a yield of 13.7%, invests in various secured mortgage products. The rise in mortgage rates has negatively impacted its portfolio, resulting in share and dividend cuts. Despite trading at only 54% of adjusted book value, NYMT management remains optimistic about future earnings aligning with dividend payouts.
Dynex Capital (DX), yielding 14.4%, focuses primarily on agency mortgage-backed securities (MBS). Its leverage has adjusted to 7.6x, following a trend in the market. While historically faced with declining dividends, recent favorable yield curve shifts may position Dynex for better performance ahead, although past reductions have heavily influenced its current payout.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
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