The average real estate investment trust (REIT) has a yield of around 3.9%, which is already pretty compelling, given the tiny 1.2% yield on offer from the S&P 500 index. But there are some REITs with even higher yields, with AGNC Investment‘s (NASDAQ: AGNC) yield at a massive 14.9% today! But don’t jump at that outsized yield; you’ll probably be better off with the 7% yield from Innovative Industrial Properties (NYSE: IIPR) or the 5.5% on offer from VICI Properties (NYSE: VICI). Here’s what you need to know.
AGNC Investment’s yield is a huge 14.9%, which should probably scare you more than excite you. The glaring question is, why is the dividend yield so shockingly high? The quick answer is that this mortgage REIT is a total return investment, not an income investment. A single graph is all you need to understand what really matters here.
Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »
The orange line in the graph above is the dividend, which rose quickly out of the gate but has been heading steadily lower for years. The purple line is the stock price, which basically tracked along with the dividend — higher and then steadily lower. If you used the dividend to pay for living expenses, you would have ended up with less income and less capital — a terrible outcome. However, look at the blue line, which is the total return. If you reinvested the outsized dividend, you would have ended up doing much better, as reinvesting the dividend more than offset the impact of the declining stock price. This is not your typical dividend stock.
Most dividend investors are looking to someday live off of the dividends they collect, so AGNC Investment just isn’t going to be a great fit for such investors. The lofty yield simply won’t do you much good if you don’t plow it all back into the stock.
If you are willing to take on a bit more risk to get a higher yield, which is a reasonable thing to assume if you have been considering AGNC, you might want to look at Innovative Industrial Properties. Although the name is pretty innocuous, this REIT is focused on owning marijuana-related assets. That’s not low-risk, though you can argue that it might be innovative. The REIT owns 108 properties across 19 states, with a heavy leaning toward marijuana growing facilities.
The legal status of marijuana is a bit up in the air, which is the risky aspect here. But the legal marijuana market has been growing and is actually projected to overtake the beer and spirits sectors, size-wise, by 2028. So, there’s a solid business foundation here. Innovative Industrial Properties’ adjusted funds from operations (FFO) payout ratio was a reasonable 85% or so in the third quarter of 2024. That’s not low, but there’s still ample room for adversity there before a dividend cut would be in order. Notably, the dividend has been increased each year since 2017 (the REIT was only founded in 2016). This appears to be a good risk/reward balance for those who can handle a little regulatory uncertainty.
