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. This time, I'm only considering REITs with a market cap greater than $300 million.
Here are the top 25 highest-yielding REITs the screen produced:
Market Cap (millions)
American Capital Agency (NAS: AGNC)
Chimera Investment (NYS: CIM)
ARMOUR Residential REIT (NYS: ARR)
Resource Capital (NYS: RSO)
Invesco Mortgage Capital (NYS: IVR)
Two Harbors Investment
Annaly Capital Management
Anworth Mortgage Asset
PennyMac Mortgage Investment Trust
Sabra Health Care REIT
NorthStar Realty Finance
Starwood Property Trust
Omega Healthcare Investors
Medical Properties Trust
Hospitality Properties Trust
Source: S&P Capital IQ.
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 Fool contributor Dan Dzombak owns shares of Annaly Capital Management, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Chimera Investment, Sabra Health Care REIT, and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. 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 a disclosure policy.