2 Top Real Estate Stocks Paying 8% Dividends Right Now

The arrival of COVID-19 in 2020 shook up the real estate investment trust (REIT) industry, but two companies weathered the storm and are now paying 8% dividends.

Once it became clear that the Fed and Congress would do everything in their power to keep the economy moving down recovery road, these powerful dividend stocks bounced back even stronger.

One of the areas to recover fastest was the commercial real estate mortgage REITs.

The bounce was led by REITs that are associated with large alternative asset and private equity managers. It quickly became clear that large alternative firms would take steps to keep these entities afloat.

As it turns out, no action was needed because the firms have been conservative in their underwriting practice. And thanks to the stimulus programs put in place, they survived easily.

But two REITs really stood out among all others throughout the pandemic for their low risk and durability. During a time when many companies struggled, these two shrugged off the troubles.

The Commercial Real Estate Stalwart

Blackstone Mortgage Trust Inc. (NYSE: BXMT) is affiliated with Blackstone Group Inc. (NYSE: BX), the private equity and alternative asset firm.

In addition to its private equity offerings, Blackstone is currently one of the largest owners of and lenders to commercial real estate worldwide. Blackstone's global real estate portfolio is thought to be worth about $369 billion right now.

Blackstone Mortgage draws on that relationship to source potential borrowers and evaluate the risk of a loan before making the deal. It prefers to lend to properties controlled by major real estate firms in major markets across the United States.

Currently, the portfolio has 122 loans with a face value of over $18 billion - 2% of the loan portfolio is in loans on assets in industrial, multifamily, and life sciences sectors. These were the strongest sectors in 2020 and have recovered nicely. They are also the sectors with the lowest exposure to problems from a resurgence of COVID-19.

Almost all of the loans are floating rate with an interest rate floor, so the portfolio is protected no matter what interest rates do.

The large high-end multifamily projects that Blackstone Mortgage would loan to are filled with white-collar workers who are able to work from home. These are the best properties with the most amenities that attract the best tenants in most cases.

Life sciences properties are leased to biotechnology companies, research labs, pharmaceutical companies, and medical devices manufacturers. Most of these companies never missed a beat, much less a rent payment during the pandemic.

Industrial real estate firms are warehouses, shipping centers, and other vital cogs in the supply chain. The dramatic rise in e-commerce over the past year has created more demand for warehouses, which will not change anytime soon.

If rents get paid, mortgages get paid. Blackstone's borrowers collected the rent that was due and will if we see a resurgence of COVID-19.

The loan to value of the portfolio is just 65%, so things would have to get very ugly before Blackstone Mortgage was in danger of losing any money in its loan portfolio.

Shares of Blackstone Mortgage Trust are currently yielding 7.8%.

While Blackstone Mortgage might've had commercial real estate and life sciences to pad its portfolio throughout the pandemic, our other REIT relied on properties owned and operated by experienced, successful sponsors.

A Real Estate Stock Operated by Seasoned Investors

KKR Real Estate Finance Trust Inc. (NYSE: KREF) is, as the name would suggest, associated with legendary private equity and alternative asset investor KKR & Co. (NYSE: KKR).

The REIT looks to originate senior loans collateralized by institutional-quality commercial real estate assets. It prefers to deal with properties owned and operated by experienced and well-capitalized sponsors with a history of success in commercial real estate markets.

The portfolio is primarily invested in multifamily and office assets that are premier properties around the United States. Hospitality and retail loans comprise 6% of the portfolio.

While that may sound risky, given the beating that hotels and shopping centers have taken, it is important to remember that these are premier properties with deep-pocketed owners.

It helps that the loan to value on the portfolio is just 67%. The real estate value would have to fall by more than 30%, and the borrowers would have to believe they would never recover.

KKR Real Estate Finance is also protected from the possibility of rising interest rates. This is because 99.7% of the portfolio is floating-rate loans.

The loans KKR makes are relatively short in nature. Many of them are to developers who need the loan until a project is completed and they can sell the property. The average loan in the current portfolio has just 3.2 years left until maturity.

Again, the safety factor of the loan portfolio is significantly increased by the fact that KREF's borrowers are the most prominent players in the commercial real estate industry and likely already have ties to KKR.

KKR Real Estate Finance can also draw on KKR's industry knowledge, relationships, and team of investment professionals to source and evaluate potential deals.

Shares of KKR Real Estate Finance are yielding 8% at the current price.

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