High Dividend Yielding REITs: 2 To Buy, 3 To Avoid

Includes: HIW, HPT, HTS, KKR, WELL
by: Dividendinvestr

Considering the rates being offered by even long term treasuries is slightly higher than 2%, REITs look a lot more attractive. REITs generate a stable income from rentals. These companies maintain high dividend yields even in recessionary times as more than 90% of their cash flows are distributed as dividends. Their success is dependent on occupation rates and the industry to which a particular REIT caters to. We have highlighted a few high dividend yielding REITs for investors' interest.

Health Care REIT, Inc. (HCN) is a Real Estate Investment Trust with investments in senior housing and health care real estate. The company's portfolio consists of 683 properties. In February 2011, the REIT acquired FC-GEN Acquisition Holding. In January 2011, the trust acquired 95% interest in 18 senior housing facilities and then later in April, it acquired Genesis HealthCare. Health Care REIT's earnings per share declined by 56% year-on-year last year, although, it had generated a revenue growth of 25%. However, its forward earnings per share are expected to increase by 17% year-on-year. This stock offers a dividend yield of 5.2%, but appears very expensive when valued at a forward price to earnings ratio of 47.2 times and 12-month trailing EV/EBITDA of 22.2 times. Given such expensive valuations, we don't recommend HCN for income investors.

High-woods Properties, Inc. (NYSE:HIW) is a self-administered equity Real Estate Investment Trust. The Company operates, acquires and develops office-related, industrial, retail and residential real estate properties in the Southeastern and Midwestern United States. In 2010, the Company acquired 336,000 and 117,000 square feet office property in Memphis and 32.6 acres of land in Tampa. High-woods Properties generated a small revenue growth of 2.9%, but delivered an EPS growth of 53.6%. In the current year, its earnings per share are expected to increase by 36%. Despite such a high expected growth in earnings per share, the stock appears to be expensive when valued at a forward price to earnings ratio of 43.9 times and 12-month trailing EV/EBITDA of 16.6 times. This stock offers a dividend yield of 5.1%. We dislike the stock at current levels primarily on the basis of expensive valuations.

Hospitality Properties Trust (NYSE:HPT) is a Real Estate Investment Trust owning 289 hotels and 185 travel centers. The company operates in the United States, Canada and Puerto Rico. The company's properties are leased or operated by subsidiary companies, such as Host Hotels & Resorts, Inc.; Marriott International, Inc.; InterContinental Hotels Group PLC; Hyatt Hotels Corporation; Carlson Hotels Worldwide, and TravelCenters of America LLC. In January 2012, the trust acquired stakes in Royal Sonesta Hotels in Cambridge and New Orleans. This stock presents a healthy dividend yield of 7.3%, while its PEG ratio is 3.8. However, Hospitality Properties Trust is slightly expensive on the valuations side at a forward price to earnings ratio of 19.0 times and 12-month trailing EV/EBITDA of 9.6 times. Its earnings per share are also expected to decline by 5.8%. This stock has expensive valuations and an unattractive growth. We would avoid it for the moment.

Hatteras Financial Corp. (NYSE:HTS) is a managed mortgage Real Estate Investment Trust. It has investments in single family residential mortgage-backed pass-through securities guaranteed or issued by Ginnie Mae, Fannie Mae or/and by Freddie Mac. It mainly concentrates on Federal agency short-term securities - hybrid adjustable-rate residential mortgage loans. The trust delivered a dismal growth in revenue of negative 1.6%, while its earnings per share also declined by 10.8% year on year. The stock now trades at a price to earnings ratio of 7.0 times and offers a healthy dividend yield of 12.9%. The company has performed worse than its peers last year, but it is difficult to ignore its strong dividend yield. Therefore, we recommend the stock primarily on the basis of its dividend yield.

Kohlberg Kravis Roberts & Co. (NYSE:KKR) is a private Equity and Venture Capital Firm with its main focus on acquisitions, leveraged buyouts, management buyouts, special situations, growth equity, mature and middle market investments. The firm has investments in diversified industries and operates in Mainland China, Australia, Hong Kong, Japan, Taiwan, India, Vietnam, Denmark, France, Germany, Netherlands, Norway, Sweden, United Kingdom, Caribbean, Mexico, South America, Canada, and United States of America. This stock offers a dividend yield of 4.6%. Kohlberg Kravis Roberts is conveying mixed signals to investors as far as its valuations are concerned. It has a low forward price to earnings ratio of 7.4 times and a high 12-month trailing EV/EBITDA of 12.5 times. The stock's main attraction is a 76.4% expected year on year increase in its earnings per share for the current year. This may increase both the stock price and the valuations. Given its current valuations and attractive dividend yield, we recommend investors to buy this stock.

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