5 Small-Cap REITs With Attractive Dividend Yields

Includes: CLNS, LSE, OLP, UHT, UMH
by: Tim Plaehn

I tend to favor larger REIT companies over smaller ones on the belief that companies become large because they do a better job at managing their business and making money. Yet a scan of dividend yields shows the larger REITs often pay lower dividend yields and that smaller cap REITs come with higher dividend yields. For the REIT investor looking to pick up a couple of extra percent on distribution yield, smaller cap stocks offer an alternative way to go.

The average of the current dividend yield of the five largest REITs is 2.68%. This is not exactly the type of yield an income oriented investor may be looking for. Moving to the other end of the REIT listing - market-cap-wise - here are a handful of REITs with attractive current yields and good long term prospects.

Colony Financial Inc. (CLNY) is a finance/mortgage REIT focused on commercial mortgages and distressed debt opportunities. Colony Financial's strategy looks for opportunities to earn 10% to 15% on equity without leverage. This REIT went public in 2009 and has steadily increased the dividend over its 2 1/2 years of existence. For the first half of 2012, the 68 cents of dividends paid were covered by 83 cents per share of earnings. The portfolio is managed by global real estate management company, Colony Capital LLC. Colony Financial has a current yield of 7.9% and a market cap of $584 million.

Universal Health Realty Income Trust (UHT) primarily owns medical office buildings - 54% of portfolio - and acute care hospitals - 34%. The dividend from UHT has been on a steady, upward path with a 15 year history of distribution growth. Over at least the last three years a significant portion of the annual dividend - about 50% in 2011 - was classified as return of capital or capital gains. Universal Health Realty Income Trust current yields 5.8% and has a market cap of $538 million.

Caplease, Inc. (LSE) is an owner of high-quality, single tenant commercial properties. Top tenants include Nestle, the U.S. Government and TJX Companies. The financial crisis forced Caplease to de-leverage and reduced the dividend from a 20 cent quarterly rate in 2008 to 5 cents in 2009. The current 6.5 cents quarterly dividend has been in effect since the 2010 fourth quarter. 2012 first quarter adjusted funds from operations were 15 cents per share, leaving room for future payout increases. Caplease has a market cap of $284 million and a yield of 6.1%.

One Liberty Properties (OLP) owns and manages a portfolio of mixed use commercial properties with all properties on a net lease system. During the financial crisis, One Liberty reduced its dividend rate by 40%, then starting raising the dividend from the lowered 22 cents per share level beginning in 2010. The current 33 cent quarterly distribution has been paid for seven consecutive quarters. FFO for the 2012 first quarter was 38 cents per share. One Liberty Properties has a market cap of $281 million and a current yield of 6.95%.

UMH Properties Inc. (UMH) owns 41 manufactured home communities with 9,000 home sites for lease. The company also owns 500 acres for community expansion. A subsidiary sells manufactured homes for placement in the UMH owned communities. Additional assets include a $47 million portfolio of REIT securities. UMH plans to add 11 new communities in 2012. The current 18 cent quarterly dividend has been paid since the 2008 second quarter. UMH Properties currently yields 6.3% and the company has a market cap of $183 million.


These five smaller market value REIT stocks pay dividends in a range of 6% to 8%. The companies will probably not grow distributions as fast as some of the larger REITs, but the current payout rates appear stable with some prospects for future growth. Smaller companies are more vulnerable to market disruptions, one reason why you should expect a better yield from a smaller company - payment for the additional risk involved in owning shares.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.