Real estate investment trusts (REITs) have experienced a challenging year due to rising interest rates, resulting in negative total returns of 25% in 2022. However, this has led to many REITs offering higher dividend yields, with the sector average now at 4.5%, surpassing the S&P 500’s yield of 1.6%. While some high-yielding REITs like Healthpeak Properties and W. P. Carey are attractive buys for income-seeking investors, Office Properties Income Trust is one that should be avoided due to its recent dividend reset and significant upcoming challenges. Healthpeak Properties offers a 5.6% dividend yield with a healthy dividend payout ratio and strong investment-grade balance sheet. The REIT has financial flexibility to invest in expanding its portfolio and embedded growth drivers.
Analysts expect Healthpeak to increase its payout by 9% through 2025. W. P. Carey’s dividend yields 5.9%, also on a firm foundation, with a reasonable dividend payout ratio and strong investment-grade balance sheet. Its other growth driver is rising rents, with the majority of its leases having rental rate escalation clauses tied to inflation. W. P. Carey has given investors a raise each year since its initial public offering in 1998 and expects to purchase between $1.75 billion and $2.25 billion of income-producing properties this year. Investors should be cautious of high-yielding dividends and ensure they are sustainable. Office Properties Income Trust is facing challenges, making it a risk for investors. Instead, Healthpeak Properties and W. P. Carey are recommended as they offer high-yielding dividends that are expected to grow in the future.
