It’s not easy to find investment income nowadays, but Real Estate Investment Trusts (REITs) often carry outstanding payouts and jaw-dropping yields.
While REITs come with a fancy name, they’re actually not that difficult to wrap your head around. These firms buy properties, collect rent from tenants, and pass on the income to investors. And because of the special way these trusts are structured, they pay absolutely no income taxes to the government.
This can translate into some big yields for unitholders. It’s not surprising to find these trusts sporting payouts of seven percent, 10%, even 15%!
With that said, not every REIT is a quality investment. You have to be picky. Here are three remarkable trusts that have relatively healthy financial structures and effective management teams.
Senior Housing Properties Trust (NYSE:SNH)
Senior Housing Properties Trust (NYSE:SNH) is currently paying the highest yields among other healthcare REIT companies. The company provides a big 9.6% yield and pays $1.56 per unit in distributions annually. (Source: Senior Housing Properties, last accessed August 11, 2015.)
As of June 30, 2015, the company owned 428 properties located in 43 states and Washington D.C. The company also recorded more than a 10% increase in revenue in the second quarter of 2015 compared to the same period last year.
Notably, despite the fact that the company increased the number of its properties, net income has increased in the second quarter of 2015 to $38.03 million from $33.0 million in the same period in 2014.
However, it’s the company’s future prospects that really impress me. As baby boomers start to retire and the population ages, the demand for assisted living communities, nursing homes, wellness centers, and other medical facilities is expected to shoot through the roof. That should translate into higher earnings (and distributions) for Senior Housing Properties Trust.
Hospitality Properties Trust (NYSE:HPT)
As part of the REIT, the Hospitality Properties Trust (NYSE:HPT) owns 292 hotels and owns or leases 184 travel centers located throughout the United States, Canada, and Puerto Rico. The trust provides 7.2% distribution yield or $2.00 per share annually. (Source: Hospitality Properties, last accessed August 11, 2015.)
During the six months ended June 30, 2015, the trust’s income tax expenses decreased to $931.00 from $1,071 for the same period in 2014 due to the rising U.S. dollar. However, cost-cutting efforts allowed operating net income to grow to $124.7 million, up from $53.0 million in the second quarter of 2014.
With lower gas prices, more travelers are likely to spend their time on holidays this year. More customers means more revenues, which means more distributions for unitholders.
Realty Income Corporation (NYSE:O)
Realty Income Corporation (NYSE:O) is a well-established real estate company. Since 1969, the firm has mailed out 540 consecutive distribution payments to unit holders, totaling some $3.5 billion.
The San Diego-based trust holds a diversified portfolio ranging from industry properties to commercial tenants. The trust has an efficient business plan; to pay distributions, the firm collects rental costs from its leased properties and pays it to shareholders.
Realty has a distribution yield of 4.8% and pays $0.19 per share monthly. Although, the trust’s share price has been flat this year, management has been able to increase the firm’s payout consistently. This has resulted in a growing income stream for investors that can keep up with inflation.
I expect that trend to continue. Higher earnings and distributions should lead to a healthy rate of return to unitholders.