High yielding dividends often come with caution signs for investors because an unusually high dividend usually means the market doesn't think the payout will last. And if we were looking at dividend yields over 6% in energy or technology that theory might be right.
But in the world of real estate investment trusts (REITs) a high dividend yield isn't as much of a problem. And if companies own assets that will generate predictable cash flows for decades to come it may be advantageous to have a high dividend yield. And Gaming and Leisure Properties Inc (GLPI 1.67%), Annaly Capital Management, Inc. (NLY +0.44%), Colony NorthStar Inc (CLNS +0.30%), and Apple Hospitality REIT Inc (APLE 0.49%) are built to succeed long-term.
Image source: Getty Images.
Gamble on this dividend
REITs are fairly new to the industry and Gaming and Leisure Properties was one of the first to be introduced in 2013 when it was spun off from Penn National Gaming (PENN 0.95%). The company now owns the real estate assets that Penn National and "substantially all" of Pinnacle Entertainment's (NASDAQ: PNK) real estate assets.
The agreements with gaming operators provides predictable rent cash flows for the REIT, which then funds the dividend. Right now, the dividend yield of 6.7% is a strong payout for investors and with the gaming industry growing around the U.S. it's a dividend that's safe for the foreseeable future.
Mortgage dividends for days
Annaly Capital Management's goal is to make money on the spread between what securitized mortgage pays and what it costs to borrow money short-term. As it makes money on the difference between those two it pays investors back with a dividend. It's a little different from a traditional REIT because it doesn't own physical real estate, but rather the paper behind thousands of homes and commercial buildings across the country.
The dividend Annaly has paid has oscillated over time, but it's been steady at $0.30 per share since the end of 2013. Given the risk management has to take on where interest rates are going in the future, this is a very risky dividend to own, but if you're looking for dividends over 6% there's going to be some risk involved.
Global real estate play
Colony Northstar isn't just a REIT, it's an investment firm that owns REITs and other financing structures like investment management. It has five operating segments, healthcare, industrial, and hospitality real estate along with other equity and debt and investment management.
The structure and diversification of industries gives the company a broad exposure to the economy, primarily across the U.S. and Europe, and the slowly improving economy. And investment management is a fee based business that controls $40.3 billion of assets under management.
Colony Northstar's dividend yield is currently a whopping 8.1%, backed up by the company's massive real estate portfolio. If you're looking for a diverse way to play the real estate market with a high yield, this is a great stock to pick.
Raising the room rates
Apple Hospitality is the owner of the real estate hotels like Embassy Suites, Hampton, and Marriott operate in. The company has a portfolio of 235 hotels with about 30,000 guestrooms in 33 states.
Hotels generate consistent revenues and as the economy has improved room rates and occupancy has been rising. That creates an ideal environment for a REIT like Apple Hospitality to generate rent from its hotel partners.
The dividend yield currently stands at 6.7% and the payout has been flat since the beginning of 2016. As with any REIT, rising interest rates are a concern that could knock down dividends, but starting at such a high yield in a growing industry gives investors the space to absorb that risk long-term.
