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. Prologis, Inc. PLD
Prologis is a logistics real estate-focused REIT that leases distribution facilities to two core customer groups: retail/online fulfillment and business-to-business. The firm boasts that it operates in high-growth markets that also have high barriers to entry. Overall, Prologis, which operates in roughly 19 countries, seems to have found a solid niche within the real estate market, as delivery and e-commerce expands in the Amazon AMZN age. PLD shares have soared over 37% in 2019 to crush its industry’s 20% average climb, and Prologis stock just hit a new 52-week intraday trading high of $82.04 on Tuesday.
Prologis is coming off a better-than-projected first quarter of 2019. Looking ahead, our current Zacks Consensus Estimate calls for the firm’s second quarter revenue to jump nearly 30% to $705.5 million, which is projected to lift its FFO by 8.5% to $0.77. Prologis’ adjusted full-year FFO is projected to jump 6.3% on the back of over 19% revenue growth. PLD has also seen a ton of positive bottom-line revisions recently to help the firm earn a Zacks Rank #2 (Buy) at the moment. Prologis currently pays an annualized dividend of $2.12, for a yield of 2.62%.
2. Mid-America Apartment Communities, Inc. MAA
Mid-America Apartment Communities’ business model is pretty evident from its name. The Germantown, Tennessee-based REIT operates apartment communities throughout ‘high-growth’ regions in the Southeast, Southwest, and Mid-Atlantic. In fact, as of the end of March, MAA held ownership interest in a total 101,954 apartment homes, which includes those in communities under development, across 17 states and D.C. Like Prologis, MAA is coming off top and bottom-line beats in Q1. Shares of Mid-America Apartment Communities are now up 24% in 2019 and 23% over the last 12 months.
Last quarter, the firm declared its 101st consecutive quarterly common dividend at an annual rate of $3.84 per common share, and MAA’s dividend yield currently rests at an impressive 3.23%. MAA’s P/E ratio of 19.1 also marks a slight discount compared to its industry’s average. The company’s current full-year revenue is projected to jump 3.5% to $1.63 billion, with the following year expected to come in 3% higher than our current-year estimate. At the bottom end, MAA’s FFO is projected to pop 3% this year and 2.8% above that next year. Mid-America Apartment Communities has also seen its longer-term FFO estimate revision activity trend upward recently to help it earn a Zacks Rank #2 (Buy).
3. NexPoint Residential Trust, Inc NXRT
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 50% in the past year to destroy its industry’s 11% average. NXRT stock opened at $40.71 per share Tuesday, just below its their 52-week intraday trading high of $41.91.
Moving on, NexPoint’s full-year adjusted FFO is projected to climb 10.6% to $2.08 per share. Meanwhile, the company’s fiscal 2019 revenue is expected to surge 17.1% to hit $171.62 million. NexPoint’s price/sales ratio of 6.27 rests below its industry’s average of 6.56. The firm currently pays an annualized dividend of $1.10 a share, for a yield of 2.71%. NexPoint is a Zacks Rank #1 (Strong Buy) right now that sports an “A” grade for Growth in our Style Scores system.
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