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 it 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. Store Capital Corp. (STOR - Free Report)
Store Capital is an internally managed net-lease real estate investment trust that works in the single tenant operational real estate space, and targets middle-market and larger companies around the U.S. The firm, which Warren Buffett’s Berkshire Hathaway (BRK.B - Free Report) invested $377 million in a few years ago, boasts a portfolio of over 2,300 locations and its average customers have revenue over $50 million. These include Art Van Furniture, Bass Pro Group, AMC Entertainment (AMC - Free Report) , CWGS Group , and more. Plus, Store Capital is coming off a better-than-projected Q1 2019 on both the top and bottom lines.
Shares of the Scottsdale, Arizona-based company have climbed over 20% in 2019 and 67% in the past two years to outpace its industry’s 6% average jump. STOR stock opened just below its 52-week intraday high on Friday at $34.04 per share. Looking ahead, our current Zacks Consensus Estimate calls for the company’s full-year fiscal 2019 AFFO to pop 2.75% on the back of nearly 21% revenue growth. STOR’s positive earnings estimate revision activity helps it earn a Zacks Rank #2 (Buy) at the moment. The company also pays an annualized dividend of $1.32 per share, with a yield of 3.87%.
2. NexPoint Residential Trust, Inc (NXRT - Free Report)
NexPoint Residential is an externally advised REIT that operates in the multifamily space, mostly in the Southeast and Texas. The company aims to own and operate properties with well-paying jobs in the area that also have a limited supply of new affordable housing. This allows them to stand out through high-quality “life-style” amenities. Shares of the Dallas, Texas-based firm have soared nearly 50% in the past 12 months to crush its industry’s 12% average and they opened just a few dollars below their 52-week high at $39.79 on Friday.
Looking ahead, NexPoint’s full-year adjusted FFO is projected to climb 11.7% to reach $2.10 per share. Meanwhile, the company’s fiscal 2019 revenue is expected to jump 17.6% to hit $172.45 million. NexPoint’s price/sales ratio of 6.17 rests below its industry’s average of 6.37. The firm currently pays an annualized dividend of $1.10 a share, for a yield of 2.75%. NexPoint is a Zacks Rank #1 (Strong Buy) right now that sports an “A” grade for Growth in our Style Scores system.
3. Armada Hoffler Properties (AHH - Free Report)
Armada Hoffler is a vertically-integrated, self-managed REIT that operates in the retail, office, and multifamily industries in the Mid-Atlantic and Southeastern area of the U.S. AHH stock has climbed 20% over the last 12 months and 17% in 2019. Shares of Armada Hoffler opened at $16.39, just off their 52-week intraday highs.
The company’s adjusted second-quarter FFO is projected to climb 20.8% on the back of roughly 19% revenue growth. Meanwhile, AHH’s full-year fiscal 2019 FFO is expected to climb 12.6% on 19% revenue expansion. Armada Hoffler has seen its longer-term earnings estimate revision activity trend upward over the past 30 days to help it earn a Zacks Rank #2 (Buy). The company also rocks a “B” grade for Growth and its price/sales ratio of 4.55 marks a discount compared to its industry’s 6.37 average. Furthermore, the company pays an annualized dividend of $0.84 per share, with an impressive 5.11% yield at the moment.
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