Real estate investment trusts (REITs) are a unique form of stocks with broad appeal for stability-seeking income investors. REITs finance, own, and operate diverse types of income-generating real estate.
Those firms invest in everything from apartment buildings, data centers, healthcare facilities, cell towers, hotels, retail centers, warehouses and more.
REITs must also pay at least 90% of taxable earnings to shareholders as dividends. That high payout is the primary reason income investors like REITs so much. Generally speaking, REITs are stable income-generating assets. Furthermore, they tend to be highly liquid and trade easily on the open market.
As with any investment, REITs aren’t without risks. They are particularly sensitive to interest rate movements, given their concentration in real estate. They also tend to focus on certain sectors, meaning sector-specific risks arise.
Overall, however, REITs remain one of the best stock types for income investors to consider.
Realty Income (O)
Realty Income (NYSE:O) is one of the more prominent REIT stocks available and will likely be one most investors will have heard of. The company is focused on the retail sector and acquires single-unit freestanding commercial properties under long-term, net lease agreements. Realty Income’s portfolio consists of 15,450 commercial properties leased to over 1,500 clients who operate in more than 89 separate industries across every U.S. state, the U.K., and six other countries in Europe.
There are three reasons that I particularly like Realty Income at the moment. The company is projecting steady top and bottom line growth through 2026, at least. The stock is also undervalued at the moment, meaning the dividend yield is relatively high, and there’s upside price appreciation potential. Last of all, Realty Income provides a monthly dividend, which is relatively unique as most companies provide quarterly dividends. That gives investors more periods to compound interest and accelerate returns.
American Tower Company (AMT)
American Tower Company (NYSE:AMT) leases multi-tenant communications real estate primarily to wireless services providers. This particular REIT is an interesting stock for income investors who want to capitalize on an opportunity at the right time.
Share prices have fallen nearly 10% so far this year. The result is that American Tower Company shares are below their low target price by a few dollars. Yields are also higher as a result, but that’s not the important point here. The important point is that timing an entrance into American Tower Company now appears possible.
The company raised its annual revenue outlook upon releasing earnings in late April. The confidence stems from increased spending by telecom carriers to cater to the increasing data demands of 5G services. Meanwhile, American Tower Company is seeing increasing demand for its data center leasing business due to the artificial intelligence boom.
The price of AMT stock is relatively low, and although REITs are generally not known to offer much price appreciation, AMT shares currently do.
Extra Space Storage (EXR)
Extra Space Storage (NYSE:EXR) stock is an interesting REIT because of its finances.
The general rule of thumb for dividend stocks is that healthy payout ratios should range no higher than 55%. That 55% represents the percentage of taxable earnings returned to shareholders as dividends. Beyond 55% is deemed risky because it’s unclear if a company can sustain that level.
Yet, Extra Space Storage boasts a payout ratio of 1.35, or 135%. That would immediately raise a red flag were it not a REIT. However, in REITs, distributions are paid from operating funds representing a larger pot of money than earnings stripped of everything. Extra Space Storage paid $344 million in distributions in Q1 from $415 million in operating funds. It’s fine. In fact, each of the stocks on this list has a payout ratio better than 100%, and some of them are even higher than EXR.
Beyond that, Extra Space Storage is projecting growth over the next two to three years at the top and bottom lines. As a result, it should continue to be steady as an overall investment.
Gaming and Leisure Properties (GLPI)
Gaming and Leisure Properties (NASDAQ:GLPI) is a highly attractive stock worth considering in the REIT space for income investors.
At the highest level, it really all comes down to the profitability of Gaming and Leisure Properties overall. There are many reasons why the company has become so profitable.
For one, Gaming and Leisure Properties uses triple-net leases to contract with gaming operators. That means those casino operators must essentially pay all fees related to the facility.
Gaming and Leisure Properties also operates in the gaming industry, which has high margins.
The net result is that a lot of cash is left over for investor dividends. The interesting thing is this: Even though Gaming and Leisure Properties pays a relatively low payout ratio of 1.08, that still results in 6.9% yields. Yes, Gaming and Leisure Properties are a bit more risky than other choices, but there’s a lot to like overall.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) leases cannabis production facilities to state-licensed operators in 19 states. The company currently owns 108 properties leased to 30 operators.
Innovative Industrial Properties shares have appreciated throughout 2024. Shares are currently priced at approximately $109, representing 9% appreciation year to date.
Innovative Industrial Properties is an interesting stock because it represents a chance at growth in what is usually a very slow REIT sector. The company’s dividend has grown at an annual rate of 40.8% over the last five years, probably a product of the rapid growth within the cannabis sector at large.
The company is projected to have nearly tripled by 2025 relative to 2020 based on revenues. However, it is starting to stabilize and slow down to a degree. The company continues to provide healthy earnings growth, manifesting as price stability. As Federal legalization approaches, Innovative Industrial Properties will be an interesting REIT to watch.
Omega Healthcare Investors (OHI)
Omega Healthcare Investors (NYSE:OHI) leases skilled nursing and assisted living facilities to operators. The stock has appreciated by yearly 8% in 2024 and is headed in the right direction.
Generally speaking, real estate income trusts derive the majority of their money from rental and interest income. Fortunately for Omega Healthcare Investors, rental income increased by $75.2 million throughout 2023. That was more than enough to offset a $4 million decrease in interest income and is part of the reason Omega Healthcare Investors’ stock is strong headed into the middle of 2024.
It’s a particularly interesting investment for stability-seeking income investors for a few reasons. No. 1, the company last reduced its dividend in 2003. That’s an impressive track record especially when considering that Omega Healthcare investors dividend yields 8.2% currently.
That combination of a long track record of stability and high-yield dividends is attractive to income investors for obvious reasons.
Four Corners Property Trust (FCPT)
Four Corners Property Trust (NYSE:FCPT) leases restaurants and retail properties. Its portfolio consists of 1,115 properties in 47 states and 149 brands.
Four Corners Property Trust is an attractive retail reach to consider for the fact that its dividend yields 5.6%, which is a relatively high return. The company last reduced its dividend in 2017 and it doesn’t appear likely to do so again anytime soon.
Funds from operations continue to more than cover dividend distributions from the company. While that’s almost always one of the biggest concerns of REIT investors, we must also remember that net income can be negative in companies that are healthy from an FFO to distribution perspective.
That’s what makes Four Corners Property Trust especially intriguing. The company does produce net gains. It reported $24 million in net income in the first quarter.
On the date of publication, Alex Sirois 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.
