These leading REIT stocks can help investors weather a downturn.
Parts of the real estate industry can provide insulation against economic downturns. Real estate investment trusts – which buy property, collect rent, and pass most of the money to shareholders – offer a way to tap into different areas of the market, but not all REITs are created equal. During the pandemic, some REITs that own shopping malls, malls, accommodation properties and senior living centers have been affected and are in recovery mode. Meanwhile, infrastructure, self-storage and industrial REITs have held up relatively well, and data center REITs have actually gained ground. These nine REITs demonstrated positive performance during the pandemic-induced recession last year.
Equinix (symbol: EQIX)
Equinix is ââa public data center REIT specializing in providing digital infrastructure and global interconnection services, with a digital ecosystem, serving thousands of customers, including Zoom Video Communications (ZM), Amazon.com (AMZN ) and AT&T (T). EQIX data centers have high power capacity, providing reliable interconnect services and affordable connectivity. Marina Vaamonde, commercial real estate investor and founder of PropertyCashin.com, says Equinix has a strong history of dividend growth. The company shows dividend growth of 8% over one year and steadily increases its dividend each year. Vaamonde says Equinix’s international presence, which is stronger than many of its competitors, “bodes well for their future” as the growing reliability of the technology will drive demand for the global need for data management.
Rolling returns over one year: 6.2%
Dividend yield: 1.6%
Americold Real Estate Trust (COLD)
COLD is a large, publicly traded REIT that connects food producers with supermarkets, restaurants and other food service providers. âThere are big barriers to entry into the industry, which is a gap for COLD,â says Peter Zabierek, co-founder and CEO of Sugi Capital Management in Philadelphia. Some of the reasons Zabierek says COLD is a âbuyâ during an economic downturn are the growth and stability of its platform, the company’s organic growth, its strategic M&A and development pipeline, and its solid balance sheet. Americold has an advantage in the industry, says Zabierek, as it is “one of the biggest and most experienced in this field.”
Rolling returns over one year: 29.2%
Dividend yield: 2.24%
CONE’s dividend growth has worked well over the past few years as the company has shown steady growth since it began paying a dividend in 2013. The REIT has seen revenue growth throughout 2020, and Over the past five years, CyrusOne has experienced revenue growth above its industry average. Despite its low earnings per share, experts believe it will rise. CONE has entered into forward sales contracts that will result in net proceeds in excess of $ 400 million by the end of 2021, according to the company’s fourth quarter and full year 2020 results.
Rolling returns over one year: 5.3%
Dividend yield: 2.8%
Lifetime Storage (LSI)
Life Storage is a self-storage industry veteran. Since opening in 1985, LSI has grown into one of the world’s largest storage operators. The company experienced substantial growth in 2020, which explains its geographically diverse portfolio and growth strategy. LSI uses asset recycling to help generate new properties that generate higher revenue growth. The company also shows strong dividend growth, posting a quarterly dividend increase of 26% over the past five years. âLSI trades at an inexpensive valuation against its peers despite one of the strongest growths and being a pioneer in contactless leasing (called RentNow),â said Matt Werner, Managing Director of Chilton Capital Management in Houston.
Rolling returns over one year: 64.9%
Dividend yield: 3.1%
Crown Castle International (CCI)
CCI has cutting-edge expertise in accelerating network connections, scaling networks and building industrial networks, among other solutions. The company operates and leases more than 40,000 cell phone towers, with a presence in most major US cities. This infrastructure connects communities and businesses to wireless services nationwide. With the increase in cell phone use and the need for more 5G networks, “the company’s organic growth is trending upward as US mobile carriers begin to develop 5G networks.” Werner said. The company closed a strong first quarter, boosting its outlook for 2021. CCI’s dividend is also above the market median of 2.3%.
Rolling returns over one year: 18.2%
Dividend yield: 2.8%
Real estate income (O)
“O is one of only two REITs to be a member of the S&P High-Yield Dividend Aristocrats Index (with) a credit rating of A- or better,” said Will Reese, head of equity research at UMB Bank . The company is focused on acquiring commercial, industrial and distribution properties which it leases to businesses and other commercial properties. âMost of O’s tenants focus on basic retail needs, such as pharmacies, convenience stores and gas stations, which protects against e-commerce competition and economic downturns,â said Reese. Realty Income’s long-term leases and constant occupancy levels provide stable and reliable income, he explains. âO has outperformed (the MSCI US REIT Index) over the past two recessions,â adds Reese.
Rolling returns over one year: 44.4%
Dividend yield: 4.06%
Duke Realty (DRE)
DRE’s supply chain expertise includes, but is not limited to, construction, development, property management and leasing. Reese says Amazon is DRE’s biggest tenant. âThe shift from physical retail to e-commerce has made industrial warehouses a business with critical needs,â says Reese. With the continued demand for e-commerce, Duke will benefit from the industry’s need for large-scale warehouses and distribution centers. âDRE outperformed the REIT index during the last recession because they have a new business model compared to the 2007 recession where the stock underperformed,â Reese said.
Rolling returns over one year: 35.2%
Dividend yield: 2.2%
Well tower (GOOD)
WELL is known for investing in properties that provide services that keep patients out of hospital and lower healthcare costs, such as senior housing, outpatient care facilities, and rehabilitation centers. Welltower has forged strategic partnerships with industry experts including Sunrise Senior Living, Cogir Real Estate and Brandywine Living, to name a few. Since spending for the health care of the elderly is expected to increase, you might be interested in purchasing WELL as the spending of the aging population is expected to increase. In fact, the healthcare industry is seen as recession resistant, as healthcare is usually a priority in good or bad economic conditions.
Rolling returns over one year: 77.7%
Dividend yield: 3.22%
STAG Industrial (STAG)
In 2020 alone, STAG, which has a more industrial orientation, acquired more than 40 buildings for a total investment activity of more than $ 770 million. STAG’s acquisition volume has been increasing for 10 years. The REIT has been able to maintain this activity as it focuses on properties that can generate cash flow. For long-term investors, STAG can offer a mix of income, growth and stable growth in earnings per share. STAG has a price-to-earnings ratio of around 27, which is well below the industry average. So it could also be seen as a game of value.
Rolling returns over one year: 49.7%
Dividend yield: 4%
REITs that may be going through a downturn:
- Equinix (EQIX)
- American Realty Trust (COLD)
- CyrusOne (CNE)
- Lifetime Storage (LSI)
- Crown Castle International (CCI)
- Real estate income (O)
- Duke Realty (DRE)
- Well tower (GOOD)
- STAG Industrial (STAG)
Update to April 27, 2021: This story was posted on an earlier date and has been updated with new information.