Dividend investing is popular again. Investors have taken to heart Jeremy Siegel's studies, which show that higher-yielding stocks tend to offer greater returns over time than low- or no-yield stocks.
The highest dividend yields can be very tantalizing. As long as a stock yielding 15% doesn't lose value, you'll make 15% in one year! In more cases than not, however, an astronomical yield is a bad sign for a stock. Since dividend yields and stock prices move in opposite directions, a high yield usually means that investors have begun to worry about the business, and driven down its stock price.
Most real estate companies are organized as real estate investment trusts, or REITs. They do this so that they can get around the double taxation issue that most investors face. REITs don't pay taxes as long as they distribute at least 90% of their income as dividends. The investor holding shares of the REIT then has to pay taxes on those dividends as though they are income. This differs from most dividends which are taxed at a lower rate.
Dividends are not guaranteed; you need to make sure that a business is generating enough cash to pay its dividend, or your investment could be disastrous.
A few months ago I ran a screen for the highest-yielding REITs, and it got such a good reception that I'm doing it again this quarter. The limitations I've set, this time, are that I'm only considering REITs and they must have a market cap greater than $300 million.
Here are the top 25 highest-yielding REITs the screen produced:
Market Cap (in millions)
Invesco Mortgage Capital (NYS: IVR)
American Capital Agency (NAS: AGNC)
ARMOUR Residential REIT (NYS: ARR)
Resource Capital (NYS: RSO)
CYS Investments (NYS: CYS)
Chimera Investment (NYS: CIM)
Two Harbors Investment (NYS: TWO)
Hatteras Financial (NYS: HTS)
Capstead Mortgage (NYS: CMO)
Annaly Capital Management (NYS: NLY)
Anworth Mortgage Asset (NYS: ANH)
MFA Financial (NYS: MFA)
Dynex Capital (NYS: DX)
PennyMac Mortgage Investment Trust (NYS: PMT)
NorthStar Realty Finance (NYS: NRF)
Crexus Investment (NYS: CXS)
Sabra Health Care REIT (NAS: SBRA)
Getty Realty (NYS: GTY)
CommonWealth REIT (NYS: CWH)
Starwood Property Trust (NYS: STWD)
Omega Healthcare Investors (NYS: OHI)
Colony Financial (NYS: CLNY)
Hospitality Properties Trust (NYS: HPT)
Redwood Trust (NYS: RWT)
Newcastle Investment (NYS: NCT)
Source: Capital IQ, a division of Standard & Poor's.
These stocks are a good place to start your research, but they're not formal recommendations. Remember, their seemingly irresistible yields could be ticking time bombs, so do your own due diligence. Also, make sure you diversify your picks across various sectors. As investors relearn every decade or so, you never want to put all your eggs in one basket -- no matter how tempting the dividends are.
At the time thisarticle was published Dan Dzombak's musings and articles he finds interesting can be found on his Twitter:@DanDzombak. He owns shares of Annaly Capital.The Motley Fool owns shares of Annaly Capital , Sabra Healthcare REIT, and Chimera Investment. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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