5 REITs Paying Over 5 Percent

NEW YORK (TheStreet) -- With cap rates compressing and the continued Fed policy of accommodating monetary economics (by maintaining artificially low interest rates), it is becoming increasingly difficult to find a REIT with attractive yield. Accordingly, economic growth remains uncertain and most believe that Fed is expected to stick to by its guns to maintain the same monetary policy into 2015.

So where can you find a REIT with moderate yield? No, I did not say high yielder; I'm simply not a fan of the leveraged mortgage REITs and I cannot come to terms with recommending shares of Annaly Capital ( NLY), American Capital Agency ( AGNC), or Armour Residential ( ARR). I get especially agitated when I see folks pushing the magnified use of leverage, without considering the number one rule of investing: protecting your principal at ALL COSTS.

Remember folks, equity REITs have outperformed the mortgage REITs over all of the last five decades and we are seeing many of the well-known mortgage REITs cut dividends again. The writing is on the wall: consistency, reliability, predictability, and durability -- all keys to an intelligent REIT investment.

Some of you know I have five kids, but that is not the reason I like the five handle. I simply think that a five-percent dividend yield is good risk-adjusted return today. Given the considerable time I spend with my readers -- many retirees -- I know firsthand that a three-percent dividend yield is not much income today. It barely buys you enough income to live, unless you cut off your internet, phones, TV, and newspaper subscriptions.

Moreover, it's the consistency in assets that generate passive income that makes REITs so powerfully attractive. The compounding effect is an ideal way to generate sustainable wealth and it beats the heck out of working hard. As the legendary investor John D. Rockefeller said: "The only thing that gives me pleasure is to see my dividend coming in."

Realty Income ( O) just crossed over the five-percent line. The Triple-Net REIT, based in Escondido, recently increased its common stock dividend to 18 cents per share from 15 cents per share. Also, this increase marks the seventieth time that the stalwart REIT has grown its dividend since listing on the NYSE in 1994. Let's not forget that the "Big O" pays monthly dividends so the frequency of the love is something that sets the blue chip in a mailbox of its own.

American Realty Capital Properties ( ARCP), yet another Triple-Net REIT, is not defined so much by its track record, but more so by the attractive 6.63 percent dividend yield. ARCP went public ( NASDAQ) in September 2011, and since that time the company has carved out an impressive niche by investing in high-quality stand alone properties.

A few weeks ago, ARCP announced that it was merging with American Realty Capital Trust III (ARCT III), a non-traded REIT affiliated with some of the key principles of ARCP. ARCT III has a much larger portfolio than ARCP and the proposed merger will bring ARCP some very a attractive "blue chip" tenants including FedEx ( FDX), Walgreens ( WAG), CVS ( CVS), O'Reilly Auto Parts ( ORLY), Family Dollar ( FDO), Dollar General ( DG), Advance Auto Parts ( AAP), and Tractor Supply ( TSCO).

STAG Industrial ( STAG) has returned almost 79% during the last year. The Boston-based REIT has a strategy of focusing on big box industrial properties in smaller markets, where competition is less fierce. The $858-million (market cap) REIT pays a current dividend yield of 5.31 percent and the company recently announced a new common stock offering (6,284,152 shares at $18.30 apiece) that should enable investors to keep growing its brand and dividend.

Medical Properties Trust ( MPW), a Cramer pick with a market cap of $1.85 billion, is the only "pure play" hospital-focused REIT in the nation. The Birmingham-based health care REIT has a current dividend yield of 5.87 percent and the demographics for the sector remain strong. MPW was formed in 2004 and the company recent surpassed $2 billion in assets owned.

Healthcare Trust of America ( HTA), also a Cramer pick, has a current market cap of around $2.313 billion. The Scottsdale-based health care REIT listed on the NYSE last year and now analysts are starting to uncover the value in the focused medical office building landlord. Wells Fargo recently issued an outperform rating on the REIT with shares now trading at $10.79. The current dividend yield is 5.33%.

Remember, income investors, there are some intelligent REIT options today and outstanding investors should seek out companies that are differentiated by durable and hardy dividends. As the legendary investor and author, Ben Graham, explained: "Paying out a dividend does not guarantee great results, but it does improve the return of the typical stock by yanking at least some cash out of the manager's hands before they can squander it or squirrel it away."

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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