The stock market’s impressive run over the last several years placed high-flying growth stocks, often from the technology sector, front and center. And the 2019 comeback has been driven once again by mega-cap tech giants. Nonetheless, a strong portfolio needs to be well-diversified. This means time is always right to consider 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. Alexandria Real Estate Equities, Inc. (ARE - Free Report)
Alexandria Real Estate Equities owns, operates, and develops collaborative technology and life science campuses mostly in coastal regions of the U.S. The firm focuses on what it calls “innovation clusters.” These include New York City, Greater Boston, Seattle, San Francisco, and a few other areas. The firm is coming off a better-than-projected first quarter and has seen its stock price climb over 23% in 2019 to outpace its industry’s 19.5% average. Looking ahead, ARE is scheduled to release its Q2 financial results on Monday, July 29.
Our current Zacks Consensus Estimates call for Alexandria’s adjusted second-quarter FFO to climb 4.9% to $1.72 per share on the back of 12.4% revenue expansion, which would see it hit $365.3 million. The Pasadena, California-headquarter firm has also seen its fiscal 2019 and 2020 earnings estimate revision activity trend in the right direction recently to help it earn a Zacks Rank #2 (Buy) at the moment. ARE last paid a quarterly dividend of $1.00 a share and has raised its quarterly payout in recent years. The firm also currently boasts an impressive 4% yield.
2. Camden Property Trust (CPT - Free Report)
Camden Property Trust focuses mainly on ownership, management, development, redevelopment, acquisition and construction of multifamily apartment communities. The Houston, Texas-based company, which boasts a market cap of $10.40 billion, owns and operates roughly 160 communities that total over 54,000 apartments around the U.S. from Southern California to Florida. CPT stock is up 20% over the last 12 months to blow away the S&P 500’s 5% climb and currently rests right below its 52-week intraday highs of $110.42 a share.
Camden, which is set to announce its Q2 2019 earnings results on Thursday, July 25, is projected to see its revenue climb 6.5% to $252.41 million and help lift its adjusted FFO by 6.7% to $1.27. Like Alexandria, CPT is currently a Zacks Rank #2 (Buy) and is trading at a forward earnings multiple that is roughly in line with its industry’s average at 21.4X. The firm has paid a quarterly dividend of $0.80 in 2019, up from $0.77 in 2018 and holds a yield of 2.95% right now. Camden also sports a “B” grade for Growth in our Style Scores system.
3. Realty Income Corporation (O - Free Report)
Realty Income Corporation focuses on commercial real estate leased to tenants under long-term net lease agreements. The firm boasts over 5,800 real estate properties that feature some impressive names. In fact, its four largest tenants in terms of percentage of Realty Income’s revenue are Walgreens (WBA - Free Report) , 7-Eleven, FedEx (FDX - Free Report) , and Dollar General (DG - Free Report) . Along with its well-known commercial tenants, investors might love that the firm pays a monthly dividend. On Tuesday, the company announced that its board declared the firm’s 589 straight monthly dividend, which amounts to an annualized payout of $2.72 per share. Meanwhile, Realty Income’s yield sits at 3.89% at the moment.
O stock has climbed over 27% in the last year and closed regular trading Wednesday at $69.92, roughly $4 below its 52-week high. The San Diego, California-headquartered company’s second-quarter 2019 earnings—due out on August 5—are projected to pop nearly 10% to reach $360.87 million, with this strong top-line growth expected to continue for the full year. At the bottom end of the income statement, Realty Income is expected to see its adjusted Q2 FFO pop 1.3% to $0.81. The company has also seen its fiscal 2019 and 2020 earnings revision activity trend almost completely upward recently to help it earn a Zacks Rank #2 (Buy).
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