NLCP - High Yield REITs Anyone?
2024-03-15 07:00:00 ET
Summary
- I generally stay out of the "high yield" lane, as I tend to focus on safer stocks with more predictable dividends.
- However, from time to time, I do like researching riskier REITs (and other income alternatives) because of such reader requests.
- Arbor Realty Trust, Sachem Capital, and NewLake Capital are three REITs with relatively high dividend yields that may be worth considering.
Nine times out of 10, I don’t recommend pursuing high-yield dividend stocks.
Not when it comes to real estate investment trusts ("REITs") or when it comes to non-REITs. I’m a safety-first kind of guy, and chasing yield alone is the opposite of safety.
As I write in REITs for Dummies, sucker yields refer to companies with excessive differences between their stock prices and dividend offerings:
“A REIT that yields 10% or higher almost always means (with some exceptions) that investors perceive very low growth or, even worse, a potential dividend cut up ahead. It’s tempting to act on that kind of percentage, but it usually ends badly. Hence the term sucker yield : It makes a sucker out of the buyer. It’s simply too good to be true.”
I go on to note that:
High Yield REITs Anyone?“If a stock seems to pay out a dividend that’s exceptionally high, investors should look even harder at the payment behind that dividend than they otherwise would. When a REIT pays a dividend beyond its earning power, it’s essentially eroding capital. It has to find money to cover its obligations, borrowing from its savings, operations, or elsewhere until it can’t even do that anymore. (Or, much less likely, it manages to dig itself out of that financial hole).”