Income investors are in a difficult position. Interest rates remain near zero, meaning yields across fixed income have declined over the past several years. When it comes to stocks, the rally to all-time highs in the market has caused the average dividend yield of the S&P 500 index to decline to around 1.3%. This is why investors looking for higher levels of income can look to high-yield REITs.

Real estate investment trusts, or REITs for short, generally offer high dividend yields because they are required to pay out substantially all of their earnings to shareholders. This results in high payout ratios, but also high yields that are routinely several times that of the broader market.

And in the case of the three stocks we’ll look at below, that is certainly true, given these three have above-market yields even when compared to other REITs. They are:

• Annaly Capital Management (NYSE:NLY)
• Apollo Commercial Real Estate Finance NYSE:ARI)
• Omega Healthcare Investors (NYSE:OHI)

REITs: Annaly Capital Management (NLY)

First on our list of REITs is Annaly Capital Management, which is a REIT that invests in financial assets, rather than physical assets.

To that end, Annaly buys and holds agency mortgage-backed securities, non-agency residential mortgage assets, residential mortgage loans, commercial mortgage loans, and other related real estate investments.

The trust was founded in 1996, employs 180 people, should generate around $1.8 billion in revenue this year, and trades with a market capitalization of $12.3 billion. These numbers make Annaly one of the largest REITs in the market.

We see Annaly struggling to grow from current levels of earnings, both given that it has seen earnings declines in recent history, as well as an unfavorable environment for leveraged REITs such as Annaly. Annaly borrows short-term money to then lend it long-term via its securities investments, so the spread it can achieve between short- and long-term rates is absolutely critical.

When rates are falling – as they were in the recent past – leveraged investment shops like Annaly have a difficult time maintaining profitable spreads. With interest rates still very low and the yield curve relatively flat, we continue to see Annaly as struggling to grow, and put its annual earnings growth at -0.2%.

Annaly has an enormous amount of debt, as one would expect for a mREIT. However, Annaly has worked in recent years to use securities proceeds to pay down debt, and its net debt position has declined from $114 billion in 2019 to $60 billion as of the end of September. However, that has also corresponded to a decline in assets, which have declined from $131 billion to $77 billion over the same time frame. Annaly will always carry a lot of debt because that’s how the mREIT model works, but it can also lead to volatile earnings.

The stock’s payout ratio is currently about 80%, which is OK for a REIT given the trust has to return almost all of its earnings to shareholders. Annaly has cut its payout several times in the past decade, so that’s something to keep in mind. But the current payout looks sustainable, and the stock currently sports a massive 10.2% yield.

Apollo Commercial Real Estate Finance (ARI)

Next up is Apollo Commercial Real Estate Finance, a REIT that is somewhat similar to Annaly in that it is a mREIT, not one that buys physical properties. Apollo originates, acquires, invests in, and manages commercial loans, subordinate financings, and related real estate debt instruments.

The trust was founded in 2009, generates about $270 million in revenue, and trades with a market capitalization of $2.1 billion.

Like Annaly, Apollo has had a difficult time growing earnings in recent years. The business model requires borrowing and investing the proceeds, so the spread is everything. With interest rates still quite low, Apollo has seen relatively flat earnings over recent years, excluding a sizable decline in 2020 related to the pandemic. We expect normalized earnings for 2021.

Still, given the challenges for the sector, we see a 7.2% earnings contraction annually in the coming years, as Apollo struggles to grow earnings on a per-share basis. Industry headwinds with interest rates, as well as a rapidly-increasing share count should keep a lid on Apollo’s earnings growth.

Apollo’s dividend is always very high in comparison to earnings, as it has routinely paid out more than 100% of earnings over the past decade, making up the deficit with newly issued common shares. The trust’s dividend has been cut multiple times to account for this, and the current payout is right near 100% of projected earnings for this year, so we believe there may be more cuts on the way.

Still, Apollo sports a current yield of more than 9%, so as a pure-play income stock, it is still quite appealing.

REITs: Omega Healthcare Investors (OHI)

Finally, we have Omega Healthcare Investors, a REIT that invests in long-term healthcare facilities, such as skilled nursing and assisted living. Unlike Apollo and Annaly, Omega holds physical properties, and operates with a triple-net lease structure that minimizes operating costs for Omega. It is active all over the U.S., and has a small presence in the UK as well.

Omega was founded in 1992, produces about $935 million in annual revenue, and trades with a $7.2 billion market capitalization.

We see modest growth ahead for Omega, coming in at 2% annually for the foreseeable future. The trust benefits from favorable demographic trends in terms of population growth in older segments. These are Omega’s customers that require some sort of assisted living, providing a wave of demand that we expect will last decades. This helps Omega produce reliable cash flows, and over time, it has produced growing earnings and dividends, both of which we expect will continue.

Omega has grown its balance sheet slowly in recent years, taking on small amounts of additional leverage when an acquisition presents itself. Omega’s balance sheet is leveraged, but that is to be expected from REITs. We don’t see Omega’s leverage as an issue, and its payout ratio is around 80% for this year. With those things in mind, we see the 8.9% dividend yield as secure for the foreseeable future.

Final Thoughts

REITs can offer investors terrific income generation, but they come with their own set of risks. Financial REITs, such as Annaly and Apollo, offer a unique set of growth and risk characteristics when compared to physical asset REITs, such as Omega.

All three REITs offer enormous dividend yields, along with varying levels of growth.

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

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.