While the stock market might be on a sugar high, REITs (real estate investment trusts) remain affordable. This is great news for income investors who seek options beyond blue chips on the S&P 500 that offer low dividend yields. REITs are appealing because they offer higher dividends. Vanguard Real Estate ETF (VNQ) is an example of an affordable fund that offers a 4.1% yield, well ahead of the 1.6% rate from SPDR S&P 500 ETF.
REITs Remain Near Their Bear-Market Lows
REITs-Lag
REITs-Lag
REITs might be low due to the continued increase in rates by the Federal Reserve. However, the increased yield has helped. Higher interest rates typically mean higher capital costs for businesses and increased competition for income as bond yields become more competitive. However, these rates will not remain high forever. As recession looms, the Federal Reserve will reduce them. When a slowdown officially hits, income investors could turn to REITs like the following five giving high yields:
5-REITs Table
CTO Realty Growth (CTO, 9.3%) is a diversified REIT that owns more than 3.7 million sq. ft. of retail properties, three office properties, and five mixed-use properties. It also has a 15% stake in Alpine Income Property Trust (PINE).
CTO has had issues, including the necessity to decrease rents on two significant leases that led to a more than 20% drop over the past year. Nevertheless, investors should monitor this stock. It experiences growth in vital areas as dividends have increased thrice over just two years.
American Assets Trust (NYSE:, 6.8% yield) is another diversified REIT owning 23 properties, including office, retail, and residential spaces. While AAT has lost nearly half of its value in the last year, the company has made progress towards improving in several critical areas as FFO has improved 16% YoY.
One Liberty Properties (NYSE:, 8.8% yield) is a net-lease REIT that has been diversifying its portfolio, with 60% of its rental revenue derived from investments in industrial holdings. However, ongoing financial issues from companies such as Bed Bath & Beyond, along with a potential restructuring of leases with Regal Cinemas, pose some uncertainties.
Broadstone Net Lease (BNL, 7.0% yield) is a Commercial REIT that primarily deals in single-tenant properties. Despite losing nearly 30% of its value in the past year, BNL continues to achieve necessary occupancy levels at roughly 99.4%. Debt shouldn’t be a concern, with less than 2% slated to come due through the end of 2025.
Gladstone Commercial (NASDAQ:, 10.4%) is a member of the Gladstone family of REITs and focuses on single-tenant and anchored multi-tenant net-leased industrial and office properties. The company had to cut down its dividend by 20%, positioning “capital preservation” as a smart move in a bid to cut down on its FFO payout ratio. The longer-term challenge for Gladstone is the possible impact on its properties from the shift to WFH.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
