High-Yield REITs: 2 to Buy and 1 to Avoid

Real estate investment trusts (REITs) offer investors attractive yields, with some REITs providing double-digit returns. However, not all high-yield REITs are created equal. This article highlights two high-yield REITs to buy hand over fist and one to avoid, based on their fundamentals, dividend sustainability, and growth prospects.

1. Realty Income (O)
Realty Income is a popular choice among high-yield REITs, offering a 4.9% dividend yield as of November 16, 2024. The company focuses on retail real estate, primarily single-tenant buildings, providing a stable income source. Its tenants, mostly from durable retail segments like grocery stores and pharmacies, contribute to its defensive nature. Realty Income has a strong track record of dividend growth, with a 26-year history of annual dividend increases. The company's diversified portfolio across various geographic regions and tenant types enhances its resilience to market fluctuations.

2. National Storage Affiliates Trust (NSA)
National Storage Affiliates is another high-yield REIT worth considering, with a 5.1% dividend yield. The company operates in the self-storage sector, which is counter-cyclical and resistant to economic downturns. National Storage Affiliates benefits from strong demand for self-storage services, driven by population growth and consumer preferences for smaller living spaces. The company's diversified portfolio across various geographic regions and tenant types further enhances its resilience to market fluctuations.

1. Two Harbors Investment Corp. (TWO)
While Two Harbors Investment Corp. offers a high dividend yield of 14.0%, it is a REIT to avoid. The company is a residential mortgage real estate investment trust (mREIT), focusing on residential mortgage-backed securities (RMBS), residential mortgage loans, mortgage servicing rights, and commercial real estate. Two Harbors' high dividend yield may be an indication of financial distress, as high yields can be associated with elevated risk. The company's high leverage and dividend cuts in the past raise concerns about its ability to maintain and grow dividends.

In conclusion, Realty Income (O) and National Storage Affiliates Trust (NSA) are high-yield REITs that offer attractive dividends and diversification benefits. However, investors should be cautious with high-yield REITs like Two Harbors Investment Corp. (TWO), as high yields may indicate financial distress. Careful evaluation of a REIT's fundamentals, dividend sustainability, and growth prospects is essential for making informed investment decisions.