- I find it to be an amazing statistic that roughly one-quarter of Americans have no retirement savings.
- I was speaking with my mother over the weekend, and she is a prime-time example of a retiree who is pinching pennies.
- She’s like most retirees, she’s looking for income-oriented stocks to help boost her disposable income.
After writing on Seeking Alpha for over a decade, I sometimes take it for granted that everyone has saved for retirement.
I was recently reading a survey that found that “23% of Americans have zero saved for retirement” and “25% between 45 and 54 years old have not started saving.”
I find that to be an amazing statistic, that roughly one-quarter of Americans have no retirement savings, which means they’re likely relying solely on Social Security benefits.
In a recent Yahoo Finance article , Gabrielle Olya explained that “the average monthly benefit is $1,542.22 as of June 2022” and this is also an astonishing data point, especially in the current environment in which retirees are getting squeezed hard with inflation.
I don’t know about you, but it would be extremely hard to live off of $1,500 per month, considering the fact that I spend that much every month on utilities and fuel for the car.
I was speaking with my mother over the weekend, and she is a prime-time example of a retiree who is pinching pennies. Fortunately, she accumulated real estate during her working years, and is not in bad shape financially.
Nonetheless, she’s like most retirees, in that she’s looking for income-oriented stocks to help boost her disposable income. She told me that she wants high yielding stocks that deliver above average total returns.
Mom is known for being a great cook, so I countered,
“Okay Mom, you want to have your cake and eat it too.”
When I hung up the phone, I thought to myself, I need to give her a list of three REITs that she should buy.
She already owns several REITs, but I could sense her frustration that she was looking to invest her hard-earned capital into safe high yielding companies.
Not sucker yields, like Global Net Lease ( GNL ) – now yielding 10.7% (with an AFFO yield of 11.8%) - or Annaly Capital ( NLY ) – now yielding 13.6%, but instead high-quality REITs that should generate consistent and predictable dividends, along with attractive price appreciation.
Recognizing that I’m essentially writing this article for my mom, you’d better bet that I’m not going to steer her into a value trap. She’s counting on me to recommend three of the best high-paying REITs that can also help her sleep well at night.
I’m up for the task, since I know that my mom is not the only one counting on me to deliver the goods – I have over 102,000 followers here on Seeking Alpha – so I can’t screw this one up.
STORE Capital ( STOR ): Yields 5.6%
STOR is a net lease REIT that owns 2,965 properties (with 573 customers) in which its largest customer has just 3% exposure and the company’s top tenants have a combined 18% exposure.
This simply means that STOR is a very diversified business model with ~11.2 billion of AUM (assets under management) and an addressable market of $3.9 trillion (+2 million sites).
I have been following STOR since the IPO and I was the first analyst on Seeking Alpha to cover the company ( first article was September 2014 ). STOR’s business model is highly predictable based in large part the focus on unit-level profitability (4.7x rent coverage) and solid capital markets discipline.
STOR maintains around 40% leverage and solid debt ratios: 4.1x debt/EBITDA, 3.4x unencumbered assets, and 7.1 debt service coverage. Rated Baa2 (Moody’s), BBB (S&P and Fitch) with internal growth drivers that deliver attractive and consistent shareholder returns: Since 2016 – AFFO CAGR of 5.7% and Dividend CAGR of 6.1%.
What’s more, STOR’s dividend growth rate is the highest in the net lease sector (6.1% per year) with the lowest payout ratio (of 69%) in the sector. Also, STOR has the second highest weighted average lease term (of 17.1 years) in the sector.
As seen above, STOR is attractive valued with a P/AFFO of 1.9x, versus the 4-year average of 16.5x. The dividend yield is 5.6% and well-covered by AFFO (as mentioned, 69%). STOR is expected to grow AFFO by 8% in 2022 and analysts consensus growth is around 4% over the next two years.
We’re forecasting shares to return ~20% over the next 12 months and of course this includes an enticing 5.9% yield. With such a diversified portfolio and solid balance sheet, our risk rating for STOR is low, and this is why this net lease REIT fits like a glove on my mom’s high-income list.
Medical Properties ( MPW ): Yields 7.1%
MPW is a healthcare REIT that owns 440 hospitals in the US (60%) and other markets including the U.K. (20%), Switzerland (6%), Germany (6%), Australia (4%), Spain (1%), and other Countries.
MPW’s core competency is in owning and investing in mission-critical hospitals where the REIT is the second-largest owner of hospital beds in the U.S., with approximately 46,000 and a U.S. portfolio of $13.3 billion.
In a recent article I pointed out that “most often, hospitals are the area's largest employer, with value created alongside adjoining: Medical office buildings (MOBs), Surgery centers, Residential communities, and Retail.”
Recognizing that hospital investments are not bulletproof, MPW has managed to diversify its business model to mitigate operator-specific risks such that, even in the event of bankruptcy: rents get paid, value is protected, and new tenants are available.
MPW utilizes multiple master lease structures that guarantee the company the right to “take back” all properties upon default. MPW's leases ensure immediate control of properties in the rare event of parent-level distress. In 2021, property-level earnings before interest, depreciation, amortization, rent, and management fees (EBITDARM) rent coverage was 2.8x… demonstrating the properties are profitable.
Over the years, we have watched MPW improves its payout ratio, while also growing its dividend. In early innings, I was not a fan of the MPW business model, recognizing that dividend growth was a critical part of the value creation process. However, MPW has proven it can manage properties globally and create value – since 2012 the company has paid out $3.2 billion in cash dividends and its capital has appreciated by $5.1 billion (2012-2021).
As seen above, MPW shares have become cheap, as the AFFO multiple is 11.8x, versus the average over 5 years of 15.3x. The dividend yield is 7.0% and well-covered based upon the REIT/BASE payout ratio of 86.3% (as of Q1-22).
Given the elevated cost of capital (AFFO yield is 8.5%) growth forecast are modest: 2% in 2023 and 2024; however, we consider the upside attractive as our 12-month total return 20%,
Simon Property Group ( SPG ): Yields 6.5%
SPG is a mall REIT that owns and interest/ownership in 199 income-producing properties in the U.S., consisting of 95 malls, 69 premium outlets, 14 mills, 6 lifestyle centers, and 15 other retail properties in 37 states plus Puerto Rico.
SPG also owns a majority noncontrolling 80% interest in TRG (Taubman Realty), which in turn has interest in 24 regional, super-regional, and outlet malls across America and Asia.
Additionally, SPG has international exposure. The REIT owns interest in 33 properties in Asia, Europe, and Canada, and also owns a 22.4% equity stake in Klepierre SA (KLPEF), one of the premier real estate businesses in France and Europe.
SPG is expertly managed by 20+ years SPG veteran, David Simon, the nephew of Herbert Simon. Mr. Simon has held the spot of Chairman since -07, CEO since -95, and has been a director in SPG since -93.
SPG has a fortress balance sheet which has credit ratings of A3 from Moody’s and A- from S&P, and this is a major advantage for the company and one reason why they dominate the sector with the highest rated portfolio.
Despite, you might say, the rising rates currently wreaking havoc across the market, it's important to realize that SPG's weighted interest rates for debt are still at close to record-low levels at this Q1-22 level, and its AFFO payout ratio or dividend coverage (63.8% according to REIT/BASE), is at the best level since before and after the pandemic.
As seen above, SGP shares are also cheap, trading at a P/AFFO of 9.5x compared with the 5-year average of 15.x. The dividend yield is 6.6%. Once more, we see value here, with our 12-month total return forecast of 20% to 25%.
More For Mom…
As I told my mother, you need to own more than 3 REITs, if “high income” is your objective. So, from hence forward, I will be writing a monthly “high yield” column for mom, and I will also share the picks with you.
iREIT
For further details see:
3 High Yield REITs For Mom