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. MGM Growth Properties LLC (MGP)
MGM Growth owns roughly a dozen gaming and resort properties, many of which are operated by casino giant MGM MGM. This portfolio includes a number of iconic Las Vegas casinos, such as The Mirage, Mandalay Bay, and New York-New York. MGP stock has jumped 23% in 2019 and 45% over the last three years. Shares of MGM Growth Properties opened at $32.38 on Friday, just off their recent highs. Investors should note that MGP is scheduled to release its first-quarter 2019 financial results on Tuesday, April 30.
With that said, the company is projected to see its Q1 adjusted FFO pop 5.7% on the back of roughly 34% revenue expansion, based on our current Zacks Consensus Estimate. The company has also seen its fiscal 2019 and 2020 FFO revisions activity trend upward recently. This positivity helps MGM Growth earn a Zacks Rank #2 (Buy). MGP also sports “B” grades for Growth and Momentum in our Style Scores system and boasts a strong dividend yield of 5.75%. Plus, the firm is trading at a discount compared to its industry’s average forward P/E ratio at 14.3 and its average price/sales ratio at 2.8.
2. Plymouth Industrial REIT, Inc. (PLYM)
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, includes Illinois, Ohio, Indiana, and even Maine. Shares of PLYM have surged 35% in 2019 to more than double its industry and the S&P 500’s climb and opened Friday at $ 17.07 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 8.8%.
Looking ahead, the firm’s first quarter fiscal 2019 revenue—due out May 9—is projected to surge over 40% to reach $16.66 million. This top-line growth is expected 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 adjusted Q1 FFO is expected to skyrocket 118.5% to reach $0.59 a share, with the full-year figure 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). On top of that, PLYM is trading at 6.5X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to its industry’s 15.7X average and its own 12-month median of 9.8X.
3. Cousins Properties Incorporated (CUZ)
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, and Phoenix. Cousins Properties recently raised its full-year fiscal 2019 bottom-line guidance on the back of three new strategic transactions in Atlanta. Shares of Cousins Properties have popped 21% in 2019. And the Atlanta-based company saw its stock price open at $ 9.49 a share on Friday, which might make it an attractive buy for investors looking for “cheap” stocks.
CUZ stock is currently trading at a discount against its industry’s average forward P/E of 15.7X at 13.4X forward earnings estimates. Meanwhile, the company’s quarterly FFO is projected to jump 13% to reach $0.17 a share on 8.8% 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 and an “A” for Momentum and has a dividend yield of 3.1%.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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