Editor’s note: This story was previously published in February 2019. It has since been updated and republished.
No matter what state the market is in, there’s always one thing investors are looking for and that’s yield. During bull markets, bear markets and periods of chop, investors want to get paid. Naturally, that brings real estate stocks into the discussion. Because real estate investment trusts (REITs for short) are required to pay out 90% of their earnings to investors, these are generally big sources of yield for income investors.
REITs don’t just pay out attractive yields; many of these companies are terrific operators too. So not only do investors get to collect a solid dividend yield, but they also get to invest in some fantastic businesses.
Just like every security, some are blue-chip REITs and others we shouldn’t touch with a ten-foot pole. So let’s avoid some of those red flags and instead go with the best real estate stocks out there, many of which recently reported earnings.
Realty Income (O)
Of those companies that recently reported earnings, Realty Income (NYSE:O) is one of them. Realty, known as “The Monthly Dividend Company,” also happens to be one of the best-run REITs out there.
The company recently announced its 85th consecutive dividend increase, making it one of the market’s strongest income plays. Shares still yield 3.84%, despite the stock sitting near multi-year highs near $70.
Now that O has pushed through $70, it could spark a larger breakout. It helps that the Fed is on hold with its rate hikes while the economy continues to chug along. That bodes well for Realty and a whole host of other REIT plays. But make no mistake about it, this one is as blue-chip as they come. Technically speaking, I wouldn’t worry about O unless it fell below $62.50.
Digital Realty (DLR)
Breaking off of the more traditional REIT path is a technology play in Digital Realty (NYSE:DLR). The “young” company was founded about 15 years ago, is headquartered (fittingly) in San Francisco and has quickly worked its way up to a $24 billion market cap.
DLR “provides data center, colocation, and interconnection solutions,” with its first segment providing it a big chunk of its business. It takes one simple consideration to see why DLR is a name to be long.
The cloud operates in data centers and with large companies like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and others gathering an ever-growing collection of data, all of that needs to go somewhere, right? As more data is created, it needs somewhere to be stored.
Further, as A.I. applications begin to grow, these programs require a massive amount of data. Data centers are where it’s stored and that’s why DLR has done so well.
Investors need to realize this is a secular shift and companies like DLR are going to be there to soak up the dollars. The stock yields “just” 3.73% and has been red-hot lately. If we get can get a pullback to the backside of former downtrend resistance or even just $116 for more aggressive investors, it’s worth considering on the long side.
The “transition” word doesn’t usually sit too well with investors, but seeing VTR return to its stronger ways must have encouraged its investor base. The fact that it still yields 5.23% even though its well below the 52-week high means there’s still room for growth.
This healthcare REIT is well-positioned for long-term secular growth. As the Baby Boomer population continues to age, Ventas’ senior care facilities and medical office businesses should continue to churn out consistent rent checks. That bodes well for investors whether VTR is pivoting or not, and it bodes well for the yield.
Tanger Outlet (SKT)
Click to EnlargeSo far we have retail, technology and medical REITs on the list, so why not further diversify with a mall REIT? With Tanger Factory Outlet Center (NYSE:SKT), investors are getting exposure to a well-run company and a big 7.44% dividend yield.
However, unlike VTR, O and DLR, Tanger is not bumping up against a potential breakout or trading higher. I’d love to see a close over $22.50 for SKT, but it’s been on a recent downtrend.
This REIT has not only paid but raised its dividend for 26 consecutive years, making this a safe-play income stock for investors. So those that are looking for safe payouts, SKT is one to consider.
While the mall is considered a dying enterprise, not all operators are created equal. With that in mind, Tanger is actually doing incredibly well. Plus it’s not a traditional mall REIT in the sense that it doesn’t operate department store locations. Instead, it thrives on the outlet mall concept.
Finally, it has a lower valuation compared to many of its peers and a higher yield. Tough not to like that.
Federal Realty (FRT)
We can’t end the top real estate stocks to buy list without talking about Federal Realty (NYSE:FRT). Yielding “just” 3.04%, this payout won’t get income investors tripping over each other in order to buy.
But considering the quality of the dividend may be another story. Get this: FTR has not only paid, but raised its dividend for 50 straight years. Through hellish inflation, tech bubbles and the greatest recession since the depression, FTR has raised its payout for investors each and every year.
If you’ve got time and are looking for a dependable stream of income, FTR should be one of your first considerations. Not just for REITs, but among all dividend stocks.
This retail REIT is as solid as they come and the valuation has been reasonable.
Shares are running into recent range resistance, which has stalled it over the past few weeks. That’s good news for bulls, as it allows the stock to digest some of this big rally. I would really like a pullback into that $127 area. However, long-term investors focused solely on the income are likely not interested in timing their investment in FTR.