The stock market’s strong run over the past few years brought attention to high-flying growth stocks, usually from the technology sector, that were consistently outpacing the market. However, fresh volatility within the last few months has shifted some focus back towards other investment strategies, and now it might be time for investors to check out things like 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 of all, 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, so investors might not love some REIT choices in this rising rate environment. 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 for Zacks readers, the proven Zacks Rank—which emphasizes earnings estimates and estimate revisions—works with REITs just as it would 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.
With that said, check out the REITs that our model says are impressive options right now:
1. Arbor Realty Trust (ABR)
Arbor Realty is a specialized real estate finance company investing in real estate-related bridge and mezzanine loans, preferred equity, mortgage-related securities and other real estate-related assets. The company is a nice small-cap option for exposure to the U.S. mortgage market.
ABR sports a Zacks Rank #2 (Buy). Analyst estimate trends have been positive, and the Zacks Consensus Estimate for the company’s 2019 FFO has gained five cents over the past 90 days. ABR also offers a 9.7% yield based on current prices. Finally, the stock has a beta of just 0.4, making it a low volatility option.
2. MGM Growth Properties LLC (MGP)
MGM Growth owns 13 gaming properties, most of which are operated by casino giant MGM. This portfolio includes a number of iconic Las Vegas casinos, including The Mirage, Mandalay Bay, and New York-New York. The business is primarily structured through NNN leases, which means it is more protected from one-time or unexpected costs.
MGM has a Zacks Rank #1 (Strong Buy) and offers a dividend yield of 6.1%. FFO estimates for 2019 are moving higher, and now the company is expected to witness even more growth on top of 2018’s expected 11% expansion. On a long-term basis, analysts expect MGP to record annualized FFO growth of 8.5%. Plus, the company has consistently raised its dividend every year and generates about $4.41 in cash per share.
3. Chatham Lodging Trust (CLD)
Chatham Lodging is a self-advised hotel REIT that focuses on upscale extended-stay and select-service hotels. The company’s portfolio includes notable brands such as Courtyard, Hampton, Hilton Garden Inn, and many more. These facilities are primarily near large metropolitan markets in the U.S., so Chatham is definitely in some prime lodging real estate.
CLD holds a #1 (Strong Buy) rating. Its consensus estimates for FFO in the current and next quarter, as well as the current and next full fiscal years, are all higher over the last 60 days. CLD also trades with a P/E of just 9.7, which is a steep discount to its industry’s average of 14.2. The stock presents a dividend yield of 6.8%, and the company has consistently delivered this payout for years.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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