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. Gaming and Leisure Properties, Inc. (GLPI)
Gaming and Leisure Properties is an owner of regional casino properties leased to the likes of Boyd Gaming, Eldorado Resorts, and Penn National. All in all, the company owns 44 gaming properties. CLPI is a Zacks Rank #2 (Buy) stock and yields about 8.4% right now. Analysts expect GLPI to witness long-term annualized FFO growth of 8.7%. The valuation remains attractive at a P/E of 10.3 and PEG of 1.2, and it is a relatively low beta option.
2. Americold Realty Trust (COLD)
Americold is a REIT focused on owning and operating temperature-controlled warehouses. It boasts the largest network of these sort of facilities in the world, making it a dominant force in global food distribution and retail industries. The company held an upsized IPO at $16 per share earlier this year and has trended higher since then.
COLD is sporting a Zacks Rank #2 (Buy) right now. The stock is trading at about 22.5x earnings, which is a slight premium to the average of its peers but within a reasonable range considering its industry dominance. Plus, Americold offers a dividend yield of 3.0% at current price levels. FFO growth is expected to hit roughly 9.5% in 2019, and about 63% of the company’s debt is fixed rate.
3. 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 #1 (Strong Buy). Analyst estimate trends have been positive, and the Zacks Consensus Estimate for the company’s full-year FFO has gained three cents over the past 60 days. ABR also offers a 10.5% yield based on current prices.
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