As the stock market goes through a seasonally weak period, real estate investment trusts (REITs) are starting to look like a safer bet. A REIT is a company that owns income-generating real estate that includes residential, commercial or industrial properties. REITs are usually regarded as defensive stocks as they tend to be resilient and stable regardless of how the overall market performs.
With a potential double-digit market correction looming around the corner, investors need to make a list of safety stocks that can hold up as the market declines. Therefore, let’s discuss seven REITs to buy now in uncertain times.
REITs have performed impressively so far in 2021 amid inflation concerns. The Dow Jones US Real Est Invest & Services Index has returned more than 19% year-to-date (YTD). By comparison, the S&P 500 index is up around 15.7%. In fact, real estate stocks offer a hedge against inflation due to their ability to raise rents. Data from the National Association of Real Estate Investment Trusts (NAREIT) highlights that as an asset class, real estate outperforms the S&P 500 Index 80% of the time during periods of high inflation.
In addition, REITs generate significant income for shareholders, as they are required to pay out at least 90% of their taxable income to their shareholders. As I write, the 10-year U.S. Treasury yield is around 1.5%. And the dividend yield of S&P 500 is 1.3%. However, REITs generate about double those amounts, between 2.7%-3% on average, making them one of the market’s top income-generating sectors.
So, with that information, here are seven reliable REITs that income investors can count on in turbulent times.
- American Tower (NYSE:AMT)
- Annaly Capital Management (NYSE:NLY)
- Innovative Industrial Properties (NYSE:IIPR)
- SL Green Realty (NYSE:SLG)
- Stag Industrial (NYSE:STAG)
- Store Capital (NYSE:STOR)
- VICI Properties (NYSE:VICI)
Now, let’s dive in and take a closer look at each one.
REITs To Buy: American Tower (AMT)
52-Week Range: $197.50 – $303.72
Dividend Yield: 1.98%
Boston, Massachusetts-based American Tower owns and operates more than 214,000 cell towers throughout the U.S., Asia, Latin America, Europe and the Middle East. The cell tower REIT leases space on its towers to wireless service providers, which then install equipment on these towers to support their wireless networks.
American Tower announced second-quarter results in late July. Revenue surged 20% year-over-year (YOY) to 2.3 billion. Net income came in at $746 million, or $1.65 per diluted share, compared to a net income of $446 million, or $1 per diluted share, a year ago. Cash and equivalents ended the period at $2 billion.
On the results, CEO Tom Bartlett remarked, “In addition to delivering double-digit growth in AFFO per Share and 15% dividend growth, we added nearly 27,000 sites through our Telxius Towers acquisition in the quarter, augmenting American Tower’s position as a leading independent provider of communications real estate in Europe.”
American Tower is one of the infrastructure stocks well-positioned to benefit from the Biden administration’s $1 trillion spending bill. Demand for communications infrastructure continues to expand globally due to the exponential increase in mobile data traffic. The 5G rollout is another strong tailwind expected to bolster wireless provider infrastructure investment over the coming years.
AMT stock also offers one of the industry’s safest and fastest-growing dividends. The stock hovers at $265 territory. It’s up 18% this year. However, valuation is not cheap. The shares trade at 51 times forward earnings and 15 times trailing sales. A potential decline toward $250 would improve the margin of safety.
Annaly Capital Management (NLY)
52-Week Range: $6.92 – $9.64
Dividend Yield: 10.35%
New York-based Annaly Capital Management is one of the nation’s leading mortgage REITs (mREITs), which “provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments.”
Annaly generates almost all of its revenue from the spread between interest generated from its assets and interest payments made on its loans. The mREIT issued Q2 results in late July. GAAP net loss came in at $296 million, or 23 cents loss per diluted share, compared to a GAAP net income of $856 million, or 58 cents per diluted share, in the prior-year quarter. Earnings available for distribution stood at 30 cents per average common share.
CEO David Finkelstein cited, “We proactively reduced leverage and the size of our portfolio while increasing liquidity to preserve capital for more attractive investment opportunities throughout the balance of the year. Despite the more conservative posturing, we generated robust earnings for the quarter well in excess of our dividend.”
Thanks to the ongoing economic recovery, mortgage REITs are currently in the sweet spot of their growth cycle. Management expects to see an increase in the company’s net interest margin over the coming months. Moreover, Annaly invests almost exclusively in agency securities backed by the federal government in the event of default.
Annaly has averaged a dividend yield of about 10% over the past two decades. NLY stock hovers around $8.50, around where it was at the end of last year. Between its potential upside and double-digit yield, Annaly may be one of the most reliable companies out there that can beat inflation over the long run. The shares trade at just above eight times forward earnings and 3.36 times trailing sales.
REITs To Buy: Innovative Industrial Properties (IIPR)
52-Week Range: $112.25 – $253.61
Dividend Yield: 2.63%
Park City, Utah-based Innovative Industrial Properties is a REIT that focuses on industrial properties leased to state-licensed operators for regulated cannabis facilities.
IIPR issued Q2 results in early August. Revenue increased 101% YOY to $49 million. The company reported a net income of $29 million, or $1.17 per diluted share, compared to about $13 million in the prior-year period. Cash and short-term investments stood at almost $806 million at the end of the quarter.
Innovative Industrial Properties serves as a source of capital by acquiring medical marijuana cultivation and processing facilities and leasing them to medical-use cannabis operators. It has completely leased its rentable space with an average lease length of over 16 years, so the REIT boasts a predictable cash flow over the next decade. Additionally, as banks and credit unions decline to offer marijuana stocks essential financial services, IIP works with these multistate operators with its sale-leaseback program.
IIPR is a rapidly-growing income stock that has increased its dividend payout by more than 600% over the past three years. With that in mind, it currently supports a 2.63% dividend yield. The shares hover around $230, gaining 83% over the past year and 25% YTD. IIPR stock also trades at 33 times forward earnings and 35 times sales.
SL Green Realty (SLG)
52-Week Range: $41.68 – $85.65
Dividend Yield: 4.99%
New York-based SL Green is among the largest Manhattan property owners and landlords, with around 46 million square feet of wholly-owned and joint venture office space. In addition, the company has property exposure through its portfolio of premium retail space.
The group released Q2 results in mid-July. Total revenue decreased 14% YOY to 218 million. Net income came in at $109.1 million, or $1.52 per share, compared to a net income of $60.2 million, or 76 cents per share, a year ago.
Despite Covid-19 question marks about the future of work, occupancy rates hover at a robust 94% in New York City, suggesting that companies expect to return to their Manhattan offices in the near future. The REIT recently sold several properties at attractive prices and used the cash to repay debt, fund new developments, and repurchase shares.
Overall, SLG stock hovers at just more than $72. It’s also up 18% YTD and 42% over the past year. In addition, the REIT has increased its dividend for the tenth-consecutive time. Its 5% dividend yield makes SLG stock an attractive pick for income investors. Additionally, the shares trade at 32 times forward earnings and 5.3 times sales.
REITs To Buy: Stag Industrial (STAG)
52-Week Range: $29.34 – $43.55
Dividend Yield: 3.61%
Boston, Massachusetts-based Stag Industrial is a REIT has single-tenant industrial properties stateside. The REIT owns over 50 warehouses and 100 million square feet of leasing space.
Stag Industrial released Q2 results in late July. The company reported $33 million of net income, or 20 cents per diluted share, compared to a net income of $18 million, or 12 cents per diluted share, a year ago. Cash available for distribution surged 8% YOY to $75 million.
On the results, CEO Ben Butcher remarked, “The second quarter demonstrated the strength of the STAG platform. The increasing demand for space in our portfolio combined with our strong external growth has resulted in upward revisions to our outlook for the remainder of 2021.”
Around 40% of Stag’s portfolio is e-commerce related. The REIT has benefited significantly from e-commerce adoption and indeed expanded its operations during the pandemic. STAG’s largest tenant, Amazon (NASDAQ:AMZN), contributes around 4% of rents.
Stag expects to continue expanding consistently, targeting $1 billion to $1.2 billion of property purchases this year. It has paid dividends ten years in a row, currently offering a 3.6% dividend yield. Analysts believe STAG stock has a favorable risk/reward ratio and is expected to gain at least 15% over the near term. The stock hovers at $40, up 28% YTD. The shares trade at 12.5 times current sales.
Store Capital (STOR)
52-Week Range: $25.23 – $37.13
Dividend Yield: 4.67%
Scottsdale, Arizona-based Store Capital focuses on single-tenant net lease real estate. In a net lease agreement, ” the tenant agrees pay rent, in addition to, any additional cost associated with the property covered on the lease.”
Store Capital released Q2 results in early August. Total revenue increased 14% YOY to $192 million. Net income came in at $62 million, or 23 cents per diluted share, including an aggregate net gain of $5.9 million on dispositions of real estate, compared to $41 million, or 16 cents per diluted share, in the prior-year quarter.
CEO Mary Fedewa cited, “We delivered strong operational results for the second quarter, originating $341 million in acquisitions at a cap rate of 7.8% and realizing strong revenue growth.”
InvestorPlace.com readers might be interested to know that Store Capital is the largest REIT holding in Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) portfolio. It offers single-tenant properties that are leased to tenants over 118 different industries. Its leases boast 14-year weighted-average remaining terms and an almost 100% occupancy rate. The REIT closed $612 million of acquisitions during the first six months of 2021 and has $12.5 billion of potential purchases in its pipeline.
Management targets 5% annual organic growth over the longer term. STOR shares offer a dividend yield of 4.7%, making it an attractive investment for income investors who wants to participate in future upside. The stock is down about 3.7% YTD and sits just under $33.
REITs To Buy: VICI Properties (VICI)
52-Week Range: $22.13 – $33.35
Dividend Yield: 4.94%
VICI Properties owns real estate assets across gaming, hospitality, entertainment, and leisure destinations. Management highlights that the “geographically diverse portfolio consists of 28 gaming facilities comprising 47 million square feet and features approximately 17,800 hotel rooms and more than 200 restaurants, bars, nightclubs and sportsbooks.”
The REIT released Q2 results in late July. Total revenue surged 46% YOY to $376 million. Net income came in at $301 million, or 54 cents per share, compared to $229 million, or 47 cents per share, in the prior-year quarter. Cash and equivalents ended the quarter at $408 million. VICI reported $6.9 billion in total debt and approximately $3.8 billion in liquidity.
On the results, CEO Edward Pitoniak remarked, “Our stellar second quarter 2021 financial results, supported by revenue growth of 45.9% year-over-year, highlight the value we’ve created on behalf of shareholders by growing our portfolio accretively and partnering with best-in-class tenants.”
Vici properties are triple net leased to prominent tenants like Caesars Entertainment (NASDAQ:CZR), Century Casinos (NASDAQ:CNTY) and Hard Rock Cafe. Tenants pay all property expenses and taxes. Terms of its leases average over 34 years. VICI managed to maintain 100% occupancy during the pandemic and collect 100% of rents.
In March, the REIT has acquired the Venetian Resort Complex from Las Vegas Sands (NYSE:LVS). Then in August, VICI agreed to acquire MGM Growth Properties (NYSE:MGP), a major rival. The recent acquisition makes Vici the biggest landowner on the Las Vegas Strip.
Furthermore, VICI’s dividend has surged every year since its IPO in 2018. The price currently supports a dividend yield of almost 5%. The stock trades at $29 territory, up 13% so far this year. And, despite becoming the largest gaming REIT, VICI shares trade at a discount to other REITs at 11 times sales.
On the date of publication, Tezcan Gecgil did not have (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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.