When investors talk about gains in the stock market, we usually think of high-flying growth and tech stocks. Over a long enough period, it can be the slow and steady compounders that build true wealth. If you’re looking for stability, exposure to real estate and a steady dividend, then real estate investment trust (REIT) stocks might be exactly what you need in your portfolio.
How can you spot a good REIT stock? Rather than using traditional price multiples for the stock, REITs are often rated by their funds from operation (FFO). This metric takes the net income of the REIT company and factors in things like asset depreciation and preferred dividends. If you’ve thought about adding some REIT stocks to your portfolio, here are three of the best to consider for this May.
Iron Mountain (IRM)
Iron Mountain (NYSE:IRM) should be a familiar name for most people who have worked in an office before. This REIT takes care of critical services including information storage, records management and data destruction. In April, seven of the nine analyst recommendations IRM received had a buy or strong buy rating. The high price target for IRM of $91.00 represents a nearly 20% upside from today’s price.
It doesn’t get much more steady than a stock like Iron Mountain. Although most REITs are seen as sleepy, IRM has returned an impressive 148.6% to shareholders over the past five years which doesn’t even include dividend reinvestment. How reliable is Iron Mountain? Well, over 90% of Fortune 1000 companies use Iron Mountain’s services.
In the most recent quarter, Iron Mountain increased its FFO by 10% year-over-year to $324 million. The company has grown its revenue in 14 consecutive quarters at a compounded annual growth rate (CAGR) of 6.0% over the past five years. It even pays a healthy dividend yield of 3.26% quarterly. With this in mind, Iron Mountain just might be one of the quietest compounding REITs to buy on the market.
Vici Properties (VICI)
Vici Properties (NYSE:VICI) is an American REIT company that owns and operates dozens of entertainment and hospitality properties. This REIT stock is one of the highest-rated on Wall Street with 21 of 24 analyst recommendations in April as a buy or strong buy rating. The average Wall Street price target of $35.08 represents a 20% upside from its current price of $29.50.
Given its clientele, Vici is one REIT that will perform better in a strong economy. It owns ten trophy assets on the Las Vegas Strip which includes more than 41,000 hotel rooms and nearly 6.0 million square feet of convention and trade show space. Some of its well-known properties include the Bellagio, the MGM Grand, the T-Mobile Arena and Allegiant Stadium.
VICI’s FFO came in at $590 million last quarter which increased by 10% on a year-over-year basis. This REIT allocates a 75% FFO payout ratio for its dividend distribution and the current yield for VICI is an impressive 5.63% paid quarterly to shareholders. Investors can count on this dividend given that VICI has grown its distribution by a CAGR of 7.9% since 2018. This makes it a promising addition to any investor’s portfolio.
Alpine Income Property Trust (PINE)
Alpine Income Property Trust (NYSE:PINE) is a Florida-based retail REIT that owns 138 net-leased properties across America. It’s not a REIT stock that gets a lot of coverage but eight of the nine analyst recommendations in April were a buy rating or higher. The current price of $15.71 is below the lowest Wall Street analyst price target, with an average price target of $18.81 which implies about 20% upside.
This retail REIT owns some of the biggest names in the industry. It holds a core portfolio of strong brands with a 99% tenant occupancy rate and also has an average weighted lease term remaining of 6.9 years. This means that the REIT is making great use of its properties.
Similar to VICI, PINE aims for a 72% FFO to dividend payout ratio. Alpine’s dividend yield sits at a massive 7.0% which the company has grown by nearly 40% since 2020. Thus, Alpine is a REIT to buy for any diversified portfolio.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (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.
