3 REIT Preferred Stocks for Yield-Hungry Investors

3. Health Care REIT, Inc. (NYSE:HCN)

Coupon Rate on Series J Preferred: 6.5%

Healthcare REIT is the nation’s third-largest medical property REIT. The company’s $16.5 billion medical properties portfolio includes senior living communities, medical office buildings, inpatient and outpatient medical centers and life science facilities. Healthcare REIT owns 1,030 properties and has established a presence in 46 states, the United Kingdom and Canada.

This REIT is focused on expansion and has grown its real estate portfolio 28% a year for the past five years. Healthcare REIT is closing the acquisition of 125 properties from former competitor Sunrise Senior Living. It has acquired $8.9 billion worth of health care real estate in the past two years. This REIT still has plenty of acquisition capacity with about $1.4 billion of cash on hand and $2 billion available on its bank line of credit. The balance sheet is strong. Long-term debt is $7.3 billion, which is just 31% ofenterprise value.

Healthcare REIT increased FFO 6.8% in the first nine months of this year to $2.67 per share, which more than covered the $2.22 per share annualized dividend. The REIT anticipates full-year 2012 FFO to come in at $3.49 to $3.53 per share. Except for two quarters six years ago, Healthcare REIT has consistently raised the dividend. The latest increase was 3.5% in September to a new annualized rate of $2.96 per share, yielding 5.1%. The REIT plans another 3.4% dividend hike next year.

Risks to Consider: REIT preferred coupon payments are fixed, but yields vary based on whetherpreferred shares are trading above or below par value. For that reason, I would think twice before purchasing any REIT preferred shares trading significantly above par value. Also, while preferred shareholders have no risk from dividend cuts, they also don’t participate in the benefits from dividend hikes. There is some reinvestment risk for preferred share investors, since REITs generally can redeem preferred stock. Almost all REIT-issued preferred stocks have a five-year redemption period.

Action to Take –> Given the huge spread between the yield on its common stock and preferred shares, SL Green may offer the best deal of the group, but all three of these REIT preferred shares provide safety and above-average yields.

This article was originally written by Lisa Springer, and posted on StreetAuthority.