The stock market’s impressive run over the last few years placed high-flying growth stocks, often from the technology sector, front and center. However, the late 2018 downturn helped remind some investors about the need to diversify and add income to their portfolios, which means now might be time for investors to look at real estate investment trusts or REITs.
REITs are companies that own, operate, or finance real estate properties that produce income, such as apartment complexes or retail locations. These companies are heavily regulated and must meet a number of qualifications to be classified as a REIT, but they do offer investors a few distinct advantages.
First, real estate can be a very profitable investment sector when certain economic conditions are present. What’s more, REITs must pay at least 90% of their taxable income in dividends to shareholders, so they are a great option for income investors looking for steady payouts.
The presence of mortgage debt makes this a rate-sensitive industry. But many companies offset this through strong funds from operations (FFO) growth, or they stick out from the pack with large amounts of their debt already fixed at a low rate.
Luckily our proven Zacks Rank, which emphasizes earnings estimates and estimate revisions, works with REITs just as does with any other company. We prefer to use FFO as the metric of profitability here, but the trends work the same otherwise.
The strongest REITs are going to be those with improving outlooks and great Zacks Ranks. So, let’s check out the REITs that our model says are impressive options right now:
1. Plymouth Industrial REIT, Inc. (PLYM - Free Report)
Plymouth Industrial is a vertically integrated, self-managed REIT that mainly operates multi-tenant industrial properties. The firm currently owns and manages 56 properties across 10 states, including Illinois, Ohio, Indiana, and even Maine. Shares of PLYM have surged 32% in 2019 to double its industry and the S&P 500’s climb and closed Thursday at $16.58 per share. Plymouth recently announced a quarterly dividend of $0.375 per share and pays an annualized dividend of $1.50, with a dividend yield of 9%.
Looking ahead, the firm’s first quarter fiscal 2019 revenue is projected to surge over 40% to reach $16.66 million. This top-line growth looks poised to continue in the second quarter and beyond to help PLYM’s full-year revenue estimate hit $69.05 million, which would mark a 40.3% jump from 2018. Meanwhile, Plymouth’s Q1 funds from operations are expected to skyrocket 118.5% to reach $0.59 a share, with the full projected to soar over 102%.
The company’s FFO estimate revisions have also come up in recent weeks to help Plymouth earn a Zack Rank #1 (Strong Buy). And PLYM is trading at 6.3X forward 12-month Zacks Consensus EPS estimates, which marks a significant discount compared to its industry’s 17X average and its own 12-month high of 16.9X.
2. Cousins Properties Incorporated (CUZ - Free Report)
Cousins Properties is another fully integrated, self-administered and self-managed real estate investment trust that invests primarily in Sun Belt area office towers, which includes Atlanta, Austin, Dallas, Phoenix, and others. Earlier this month, Cousins Properties raised its full-year fiscal 2019 bottom-line guidance on the back of three new strategic transactions in Atlanta.
Cousins Properties has seen its stock price surge 27% to start the year to help it top its industry’s 16% climb. Shares of the Atlanta-based company also closed at $10.04 a share on Thursday, which might make it an attractive buy for investors looking for “cheap” stocks.
CUZ stock is currently trading at a discount to its industry’s average forward P/E of 17X at 13.9X forward earnings estimates. Meanwhile, the company’s quarterly FFO is projected to jump over 33% to reach $0.20 a share on 7.7% expected revenue growth. Cousins Properties has also seen a ton of positive FFO estimate revision activity recently. This upward revision trend helps the stock earn a Zacks Rank #2 (Buy) at the moment. CUZ also sports a “B” grade for growth in our Style Scores system and has a dividend yield of 2.59%.
3. Equinix, Inc. (EQIX - Free Report)
Equinix is a data center-focused REIT that is a Zacks Rank #2 (Buy) at the moment. The Redwood City, California-based firm posted funds from operations of $414.1 million, or $5.13 per share, last quarter, which topped our estimate. Equinix is a company that gives investors exposure to the cloud computing business and dividends that many actual cloud-focused companies do not. Equinix reportedly captured 48% of the Fortune 500 and has seen its stock price jump 26% this year.
The firm has paid out total dividends of $9.30 a share over the last year. EQIX has also consistently raised its quarterly payout by roughly 15% every year over the past few years and currently has a dividend yield of 2.15%. Investors should also note that the company is actively expanding its business around the globe as the cloud and data center revolution rages on.
Equinix is projected to see its current-quarter revenue jump 10.6%, with full-year revenues expected to climb 9.5% to reach $5.55 billion. The cloud-focused REIT is also expected to see its full-year funds from operations jump 9.7% to $22.69 per share.
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