In the holiday classic, A Charlie Brown Christmas, Lucy laments to Charlie Brown that she never gets the present she wants for Christmas. That is, real estate. Would she have been happy owning shares of one or more reliable real estate investment trusts (REITs)?
In 2022 and 2023, that answer would have been a resounding no. The rapid pace of interest rate hikes to cool down the economy was detrimental to many REITs. However, Lucy and you may want to be open to buying reliable REITs in 2024. This is particularly true of REITs with monthly dividends.
Interest rates appear to be at, or very near, their terminal rate for this hiking cycle. The 10-year Treasury yield, the rate used to set mortgage and credit card interest rates, dropped to 4.17% on Friday, Dec.8. In the short term, REITs act like bonds because they have an inverse relationship to interest rates. That is, when rates fall, REITs rise.
The S&P U.S. Equity All REIT Index is down 2.7% in 2023, which has made many REITs attractive regarding their valuation. Here are three reliable REITs for income investors to consider as we head into 2024. These REITs don’t give you the highest dividend yields, but you get a little less volatility in return—and we can all use less of that.
Realty Income (O)
Realty Income (NYSE:O) is in the commercial real estate sector. If you only pay attention to the headlines, you’d want to stay far away from O stock. However, the company specializes in single-tenant commercial properties that serve essential functions (think grocery and convenience stores).
The stock is down over 15% in 2023 despite a 7% rally in the last month. However, since dividend yields move inversely to stock prices, that’s boosted the yield for O stock to a juicy 5, which outpaces the industry average around 4.9%. It’s also about Realty Income’s own history.
Of course, dividend yields go up and down. The key to owning reliable REITs is ensuring your monthly dividend is safe. Realty Income is a Dividend Aristocrat, having increased its dividend in the last 31 years. The stock has averaged 3% dividend growth in the previous three years, which has boosted the annual payout per share to $3.07. And remember, this is income you’re getting every month like clockwork.
Omega Healthcare Investors (OHI)
The axiom of skating where the puck is moving can be overused. But it applies to considering Omega Healthcare Investors (NYSE:OHI) for your income portfolio. The REIT invests in long-term care facilities, including nursing and assisted living facilities. Given that the aging of America will only continue to accelerate, Omega Healthcare is well-positioned for future growth.
In the last three months, OHI stock has been down approximately 4.5%, which means it has only been up about 2.4% over the last 12 months. However, the stock is up 9.2% in 2023, easily outperforming the sector. That may have caused some investors to take some profit. The sell-off may bring them back, and that’s also an opportunity for you.
There is a definite lack of growth in the company’s dividend. That’s not to say that Omega’s dividend is poor. However, with a yield of 8.78%, it’s still a high-yield option for income investors. Investors shouldn’t be concerned about the REIT funds from operations (FF), which are steady year-over-year.
Apple Hospitality REIT (APLE)
On Dec. 8, 2023, investors got the latest read on the labor market. The closely scrutinized Jobs report showed that the economy created 199,000 jobs in November. In terms of Apple Hospitality REIT (NYSE:APLE), the key takeaway is that 25% of the jobs created, 40,000 were in the leisure and hospitality sector.
Apple Hospitality is primarily focused on upscale hotel properties, including Marriott (NASDAQ:MAR), Hilton (NYSE:HLT) and Hyatt (NYSE:H). The company is well-positioned to take advantage of a travel bubble that doesn’t show much sign of popping.
APLE stock is up 7% in 2023, but that’s a little deceptive since the entire gain has come in the last month. The proposition for investors is simple. If you believe a soft landing is possible and the U.S. may avoid a sharp recession, Apple Hospitality REIT is one of the stocks that will benefit. If not, you’ll still collect a monthly dividend yielding 5.68%.
On the date of publication, Chris Markoch 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.
