7 Potential Mousetrap REITs - High, Potentially Unsafe Yields

Core Viewpoint - The current environment presents a favorable opportunity for investing in REITs, with many offering higher-than-usual yields and inflation under control, potentially leading to stable or declining interest rates [1] Group 1: Dividend Safety Importance - Dividend safety is critical for REITs as a cut in dividends can lead to a significant drop in share prices, causing investors to incur losses [2] - Investors should avoid "mousetrap" REITs, which may appear attractive due to high yields but often indicate underlying financial issues [2] Group 2: Dividend Safety Scores - Seeking Alpha Premium provides a Dividend Safety score, where a higher score indicates a lower likelihood of a dividend cut within the next 12 months [3][4] - Companies with a Dividend Safety grade of A+ can afford to pay out more cash income to shareholders, while those in lower grades may be retaining earnings for expansion [4] Group 3: Yield Considerations - With U.S. treasuries yielding approximately 4.25%, REITs need to offer at least a 5.25% yield to be considered attractive to income investors [5] - The average REIT yield is currently below the no-risk rate, making many REITs less appealing unless their stock prices are expected to rise significantly [5] Group 4: REITs in the Danger Zone - As of the latest data, there are 22 equity REITs with yields over 5.25% that have been rated in the Danger Zone for Dividend Safety [6] - The article highlights seven REITs with a Dividend Safety grade of F, indicating a high risk of imminent dividend cuts [6] Group 5: Specific REIT Analysis - Global Net Lease (GNL) has a high yield of over 12% but faces significant financial challenges, including a 65% debt ratio and a projected decline in FFO/share of -38.7% [7][8] - Clipper Realty (CLPR) has a debt ratio of 95% and is expected to see a -40% decline in FFO/share this year, raising concerns about its dividend sustainability [9][10] - Global Medical REIT (GMRE) has maintained its dividend historically but faces a -9.8% decline in FFO this year, putting its dividend at risk [11][12] - Easterly Government Properties (DEA) has a forecasted FFO/share decline of -10.2% and a concerning payout ratio, indicating potential dividend issues [13][14] - Healthcare Realty (HR) has a low interest coverage ratio of 0.20 and is expected to see an -8.3% decline in FFO, raising red flags about its dividend safety [15][16] - Postal Realty Trust (PSTL) has a TTM payout ratio exceeding 800% and is expected to see a -7.3% decline in FFO/share, indicating significant risk [17][18] - Crown Castle (CCI) has a high debt-to-equity ratio of 520% and is projected to see a -14.5% decline in FFO/share, despite a history of dividend growth [19][20] Group 6: Conclusion on Dividend Safety - A grade of F in Dividend Safety suggests a 40% chance of a dividend cut within the next year, prompting investors to reconsider their positions in these REITs [21]