Real estate investment trusts (REITs) are a popular investment for income-oriented investors. REIT stocks give investors exposure to the real estate market without having to deal with the maintenance and upkeep that is required of landlords.
REIT stocks will never be listed among the high-flying growth stocks, but that’s not why investors choose them. The goal is consistent revenue and earnings that fuels a stable and ideally growing dividend. This is because REITs are obligated to pay out up to 90% of their earnings to shareholders.
During the pandemic, demand for residential housing soared. And with the economy reopening, commercial and industrial housing is showing strong demand as well. This demand was reflected in the quarterly earnings of many REIT stocks.
And the good news is that there’s no indication that the growth will slow anytime soon. With that in mind, here are seven high-quality REIT stocks that can help you take advantage of the current real estate market.
- AGNC Investment Corp. (NASDAQ:AGNC)
- Annaly Capital Management (NYSE:NLY)
- Realty Income (NYSE:O)
- Sun Communities (NYSE:SUI)
- Duke Realty Corp. (NYSE:DRE)
- CubeSmart (NYSE:CUBE)
- Vici Properties (NYSE:VICI)
High-Quality REIT Stocks: AGNC Investment Corp. (AGNC)
AGNC Investment Corp. is the first of several mortgage REITs (mREITs) on this list. Rather than investing in properties, mREITs invest in mortgages and mortgage-backed securities (MBS). The benefit to investors is that these companies generally offer a best-in-class rate of return. However, they also carry an above-average risk, which can be attributed, in part, to a higher debt load.
Specific to AGNC, they invest in government-backed mortgages. In early June, AGNC stock was up to nearly $19. The stock has given up most of those gains and is only sitting on about a 2% gain as of this writing. However, investors do get a monthly dividend that has a yield of 8.99%.
In its recent earnings call, management indicated that they are forecasting the Federal Reserve to being tapering in early 2022. They are also on board with the current belief that inflation will be transitory. Therefore the company expects interest rates to remain range bound. This combination should allow the company to improve its investment opportunities because of low leverage and strong liquidity.
Annaly Capital Management (NLY)
The second of the mREITs on this list is Annaly Capital Management. Annaly is the largest mREIT by market cap. Like AGNC, the company buys mortgage-backed securities and then trades them. In fact, the agency’s MBS makes up nearly 90% of the company’s portfolio.
InvestorPlace’s Bob Ciura recently gave NLY stock his seal of approval for income investors. Ciura remarked, “On the whole, total return potential is in the mid-to-high single digits, making the stock a quality holding for income investors.”
In its most recent quarter, Annaly nearly doubled its quarterly growth in mortgage servicing rights (MSR). However, that was offset somewhat by weakness in its agency MBS business. This weakness was largely due to volatility related to spread widening on lower rates and continued elevated speeds and supply.
NLY stock is up about 14% in the last 12 months. The company has a dividend yield that currently sits at over 10%, which is about what the company has averaged since going public in 1997.
High-Quality REIT Stocks: Realty Income (O)
A different way to play the mREIT sector is with a company like Realty Income. The company invests in single-tenant commercial properties that are subject to triple-net (or NNN) leases. Realty Income does business in the United States, Puerto Rico and the United Kingdom.
Over half of the company’s tenants are investment grade and in defensive industries (e.g. discount stores, drugstores and grocery stores). This gave it the ability to weather the pandemic.
Realty Income also delivers reliable revenue with an average lease of nearly 10 years and a footprint that is spread across 50 different industries. In fact, the company doesn’t have a single tenant that accounts for more than 10% of its revenue.
While all REITs are obligated to pay a dividend, not all dividends are equal. Realty income stands above many other REIT stocks because of its status as a Dividend Aristocrat, meaning it has raised its dividend for at least 25 consecutive years.
Sun Communities (SUI)
The pandemic has created a perfect storm for travelers. First, many Americans paid down debt while seeing stimulus money added to their savings. Add in the ability for many workers to work from anywhere, top it off with the rollout of multiple Covid-19 vaccines and suddenly the pent-up demand was unleashed.
And that’s been a benefit to Sun Communities. This REIT owns many RV parks, marinas and manufactured home communities. The company recently blew the top off its earnings; posting revenue of $603.9 million, a nearly 100% increase from the prior year. The same was true of the company’s net income which rose 88% from the prior year.
All of this served to lift the SUI stock price to a new 52-week high. And although the stock is down slightly from that peak, conditions remain favorable for the stock for the remainder of 2021.
Sun Communities doesn’t offer the most impressive dividend in terms of yield (it’s below 2% at the time of this writing). But yield doesn’t tell the whole story. In this case, Sun plays an annual dividend of $3.34 and has increased the dividend in each of the last four years.
High-Quality REIT Stocks: Duke Realty Corp. (DRE)
So far this list of REIT stocks has focused on residential properties. However, REIT investors can consider Duke Realty Corp. for the exposure it provides to the commercial side. Duke Realty has a focus on industrial warehouses. The company has seen its stock price rise approximately 340% in the last 10 years mostly due to the growth of e-commerce and the company’s business relationship with Amazon (NASDAQ:AMZN).
Currently, Duke Realty is riding favorable supply and demand trends. In this case, for the second straight quarter, demand for their properties exceeds the supply. That is one reason DRE stock has climbed 28% in the last 12 months.
While Duke Realty posts consistent, growing returns, it can’t say the same about its earnings. The company has missed analysts’ expectations in four of its last eight quarters.
Nevertheless since reporting earnings on July 28, 2021, three analysts have increased their price targets for DRE stock. And all of them have the stock increasing to at least $55, or nearly 10% from its current level.
Duke Realty has increased its dividend in each of the last six years.
CubeSmart owns and operates storage units. This is a different way to play the real estate market and is in one of the hottest sectors in the last decade. According to data from Mordor Intelligence, the sector will be valued at $64 billion yearly by 2026.
And that trend has accelerated during the pandemic. First, there are many first-time home buyers entering the market. And second, many Americans are relocating to take advantage of a robust job market.
But as they leave one residence, they need a place to hold their stuff. That’s where CubeSmart comes in. CUBE is one of the largest companies in this space with a $10 billion market cap. It owns 1,200 properties worldwide that totals over 37 million square feet of rentable area.
CUBE stock is up 49% in 2021 and although the company’s CEO Chris Marr believes growth will stabilize at some point in the future, he does not see growth in the sector cooling down anytime soon.
High-Quality REIT Stocks: Vici Properties (VICI)
The last of the REIT stocks on our list is Vici Properties. Vici is a reopening play with assets focused on areas such as hospitality, leisure, entertainment and gaming. Vici recently announced a $17.2 billion acquisition of MGM Growth Properties (NYSE:MGP). This makes the company “America’s Largest Owner of Experiential Real Estate.”
VICI stock has been one of the best performing REITS in the last year, sporting a gain of nearly 19%. Share price growth has slowed down considerably since April. But the MGP deal should be a catalyst as the company says the deal should be accretive to the bottom line almost immediately.
In addition to now having an enterprise value of over $45 billion, Vici offers a dividend that has grown for the last three years and is supported by its strong balance sheet. In the company’s most recent earnings report it generated 54 cents in earnings per share on adjusted funds from operation (AFFO) of $256.1 million. Furthermore, the company is forecasting full-year revenue between $1.010 and $1.035 billion, which at the low end would be a 10% increase from the prior year.
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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.