Income investors looking for high-yield stocks with safe dividends should take a closer look at real estate investment trusts (REITs). The appeal of REITs is that they provide investors with the opportunity to profit from real estate, without the need to own property.

REITs are required to distribute the vast majority of their taxable income to shareholders, in exchange for a favorable tax status. As a result, investors can find high dividend yields to be very common among REITs.

Of course, investors need to make sure the underlying dividend is safe, particularly in an environment of rising interest rates and possible recession. These three REITs to buy have safe dividends, even in a recession, along with their high yields.

Essex Property Trust (ESS)

Real estate investment trust REIT on an office desk.

Source: Vitalii Vodolazskyi / Shutterstock

Essex Property Trust (NYSE:ESS) invests in West Coast multi-family residential proprieties, where it engages in development, redevelopment, management and acquisition primarily of apartment communities. Essex has ownership interests in several hundred apartment communities consisting of over 60,000 apartment homes. The trust produces approximately $1.7 billion in annual revenue.

On Feb. 7, 2023 Essex announced its fourth-quarter and full-year 2022 earnings results. Q4 funds from operations (FFO) of $3.77 beat analyst estimates by 4 cents. The trust achieved same-property revenue and net operating income growth of 10.5% and 13.3%, respectively, compared to the fourth quarter of 2021. As of Feb. 6, 2023, the company had approximately $1.3 billion in liquidity via undrawn capacity on its unsecured credit facilities, cash and marketable securities.

Essex Property Trust is a high-quality apartment REIT that has raised its dividend for 28 consecutive years from the time it first became a publicly traded trust. Its dividend history places it on the list of Dividend Aristocrats.

Real estate has a natural moat and Essex’s exposure to high-value cities with strong technology cultures further widens that moat. The trust has a solid BBB+ credit rating and currently has a very healthy interest coverage ratio and net debt to adjusted EBITDA ratio. The stock currently yields 4.7%.

CubeSmart (CUBE)

In this photo illustration CubeSmart logo of a real estate investment trust (CUBE) is seen on a mobile phone and a computer screen.

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CubeSmart (NYSE:CUBE) is a self-managed REIT focused primarily on the ownership, operation, management, acquisition and development of self-storage properties in the United States. The company owns 611 self-storage properties, totaling approximately 44.1 million rentable square feet in the District of Columbia and 24 states. In addition, the company manages 663 stores for third parties bringing the total number of stores that it owns or manages to 1,279. CubeSmart has over 340,000 customers and generated around $1 billion in revenues last year.

On Dec. 7, 2022, CubeSmart raised its dividend by 14% to a quarterly rate of 49 cents. The double-digit dividend hike came after a strong year for the REIT. For the 2022 fourth quarter, revenues grew by 9.5% to $200.7 million year-over-year. Higher revenues were primarily attributable to increased rental rates on our same-store portfolio as well as revenues generated from property acquisitions and recently opened development properties.

Same-store net operating income (NOI) rose 12.1% year-over-year, driven by 9.5% same-store revenue growth against just a 2.3% same-store increase in property operating expenses. Accordingly, FFO grew by a substantial 72.2% to $152.6 million. FFO per share grew by 68% to 67 cents. Same-store occupancy at the end of Q4 was 92.1%, slightly lower from last year’s 93.3%.

For the year, FFO per share jumped by 19.9% to $2.53. Management introduced its fiscal 2023 guidance, expecting to achieve FFO per share between $2.64 and $2.71. The midpoint of this range implies year-over-year growth of about 6%.

CubeSmart showcases an excellent track record of growing revenues and FFO per share, with management skillfully acquiring lucrative properties and maximizing their potential profitability through operational efficiencies and low-cost financing. Consequently, the company’s FFO per share has grown by around 12.6% on average annually over the past decade.

The company showcases several competitive advantages. These include its properties being located at prime markets with good visibility and ease of access that maximizes cash flows, as well as robust growth potential due to great demand for storage combined with ultra-cheap financing. Also, unlike other types of REITs, a massive customer base provides cash flow diversification. The self-storage market remains quite competitive, nonetheless. The 10 operators collectively own approximately 25% market share, which means there is plenty of space for consolidation in the medium term.

CUBE stock currently yields 4.4%.

American Tower (AMT)

American Tower Corporation logo on a smartphone with the website in the background on a computer screen. AMT stock.

Source: T. Schneider / Shutterstock

American Tower (NYSE:AMT) specializes in owning, operating and developing multitenant communications real estate, with a portfolio of more than 220,000 communications sites, in the United States and internationally. Last year, the company generated $4.5 billion in Adjusted Funds from Operations (AFFO) attributable to stockholders.

In late February, American Tower reported financial results for the fourth quarter of fiscal 2022. It grew its revenue 11% over the prior year’s quarter, as its customers keep developing next generation networks. Consolidated AFFO per share grew 13%, from $2.18 to $2.46. The REIT benefits from the ramp-up of 5G in the U.S. and Europe and the expansion of 4G in earlier-stage markets.

American Tower provided guidance for 2023. It expects about 2.9% growth of property revenue and consolidated AFFO per share of $9.49-$9.72. American Tower has put together an exceptional record in the last decade, and many of those tailwinds still exist today. The company is well entrenched as a leader in the U.S. market and has also been significantly expanding abroad. The continued increase in data usage, especially as it relates to international countries “catching up,” will be a trend for some time. Moreover, with long-term leases in place, American Tower has good visibility into the future.

American Tower enjoys a competitive advantage in its leadership in the U.S market. Not only is the company entrenched in the space, but switching costs for the company’s customers (once equipment is installed) are quite high. Meanwhile, American Tower enjoys economies of scale as it grows larger, with the cost to add additional tenants to a tower being effectively negligible. Further, unlike its U.S. counterparts, American Tower is geographically diversified around the globe.

With a dividend payout ratio of approximately 64% expected for 2023, we view the dividend as safe. Shares currently yield 3.3%.

On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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