Buy these 3 high yielding dividend stocks today and sleep well for a decade

The real estate investment trust (REIT) sector is known for offering investors a high level of dividend yield. This makes sense because REITs were designed specifically to pass income to shareholders through dividends.

But if you’re looking for the most reliable dividend-paying REITs, you’ll want to focus on Federal Realty (FRT -0.27%), Real estate income (A -0.32%)and Essex Property Trust (ESS -0.00%)which all invest in various types of institutional real estate. Here’s a primer on each.

Federal Realty’s portfolio is small, but its results are huge

Federal Realty’s dividend yield is approximately 3.8%. This is well above the 1.2% you would collect from a S&P 500 index fund and roughly in line with REITs’ average 3.9% return. But the big story here is that Federal Realty has increased its dividend for 57 consecutive years. That makes this REIT a dividend king. Right now, it’s the only REIT to achieve this status, which suggests you can own it and sleep easy.

What’s interesting is that Federal Realty takes a different approach to its portfolio than most REITs. REITs typically grow by buying more properties. Federal Realty’s portfolio contains only about 100 malls and mixed-use properties. But there are very good properties located in markets that have high barriers to entry and are densely populated with higher-income customers. Basically, Federal Realty owns retail assets in locations where retailers want to be. The results speak for themselves, in terms of dividends.

Federal Realty’s business performance will rise and fall over time because its business is directly tied to the performance of its tenants (who are affected by the ups and downs of the economy). But if you’re looking for landlords with proven track records of success throughout the economic cycle, Federal Realty is the place to start in the mall sector.

Real estate income is number 2, but also number 1

NNN REIT is the net lease REIT with the longest streak of annual dividend increases at 35 years. A net lease requires tenants to pay for most of the running costs at the property level. NNN REIT’s yield is 4.8% and is a perfect “sleep well at night” REIT.

But Realty Income is the 800-pound gorilla of the net rental sector, weighing in at roughly four times the size of the next big competitor (which isn’t an NNN REIT, by the way). Realty Income has raised its dividend for 29 years, which is still pretty impressive, and its dividend yield is slightly higher at 5%.

Simply put, if you prefer to own the biggest and best companies in a sector, Realty Income is the REIT to buy, even if NNN REIT has a longer dividend streak. There are several reasons for this. Realty Income’s size (it owns a whopping 15,400 properties) gives it advantageous access to capital markets and the ability to make deals that smaller peers could not. Realty Income’s size also means it has more diversification, but that extends far beyond the number of buildings it owns.

Unlike NNN REIT, which focuses exclusively on single-tenant commercial properties in the US, Realty Income owns commercial, industrial and other assets (especially casinos and data centers). Realty Income also has exposure to European markets, where net leased assets are still a fairly new category. This should provide a material runway for future growth. Conservatively managed real estate income is the name to beat in net leasing, and the high-yield REIT could comfortably find a home in all conservative dividend portfolios.

Essex Property Trust focuses on an attractive market

Essex Property Trust is the hardest REIT to buy on this list because of its business model. But first, some statistics. Essex has increased its dividend annually for three decades. The dividend yield is 3.2%, which is a bit low for a REIT, but still high relative to the overall economy. The big selling point there, however, is that the dividend has grown at a compound annual rate of just over 6% over the past decade. That’s about twice the size of Federal Realty, NNN REIT and Realty Income.

Essex Property Trust is basically a growth and income stock or a dividend growth stock. That’s not a bad thing — unless your only goal is to generate the highest possible income from your portfolio. Over time, strong dividend growth can lead to a very attractive return on the purchase price. This is the first hurdle for investors.

Essex Property Trust also owns apartments and is heavily focused on technology-based markets on the West Coast. The latter is the big problem as Essex Property Trust is not that diversified. Apartments are a reliable asset class, given that a home is a necessity, and Essex Property Trust operates in supply-constrained markets with strong demand characteristics.

This approach has worked well over time. To own it, however, you have to understand that a West Coast tech downturn could cause immense pain to this REIT’s business. If history is any guide, however, this hasn’t been much of a problem given the impressive dividend track record.

Sleep well at night for a decade or more

All of the REITs highlighted here have dividend streaks spanning several decades, and there’s no reason to believe those streaks will end anytime soon. All offer a slightly different investment angle, from malls to apartments. And they all have generous yields, although Essex Property Trust is probably best regarded as a dividend growth stock.

If you’re a dividend investor looking at the low yield available from the S&P 500, you’ll likely find all of the REITs here attractive income options today and for years to come.