Improving economy, better job market environment and corporate tax cuts have instilled confidence among consumers of their well-being and promoted healthy capital investments in the first half of the year, helping equity markets in the United States to excel. REITs too managed to pull off a decent performance with occasional hiccups, and the FTSE NAREIT All REITs Index gained 3.93% in the first 11 months of 2018, as growth in the economy translated into greater demand for real estate and higher occupancy levels.
However, Wall Street has been plagued with adversities, this month, and the broader markets’ initial gains were wiped out amid volatility in oil prices, trade war tensions, tariff impositions on a number of foreign countries, as well as the weakening global economy.
The Fed’s recent rate hike announcement, the fourth time in 2018, only acted as another challenge. Though the move reasserted Fed’s position as an independent institution defying President Trump’s recurrent jibes and dashing hopes of investors, it also sparked volatility as the central bank projected another two hikes next year when markets and the economy face multiple headwinds. Also, the Fed lowered its economic forecasts for the next couple of years.
Amid all these, the fear-gauge CBOE Volatility Index (VIX) flared up 17.7% over the past two days to settle at 30.11 on Friday and this swing is expected to continue in the days to come. While market volatility is unavoidable, for an investor, weathering this instability is of prime importance. Rather than distancing oneself from the market or waiting on the sidelines, braving this market volatility would indeed be a smart move. This might appear as a daunting task initially, but an apt strategy would be to resort to income investing.
Speaking on income investing, the dividend aspect of a stock is crucial. Dividends are by far the biggest enticement to invest in REIT stocks because these offer stable income with a good inflation upside shield. In fact, as of Nov 30, 2018, the dividend yield of the FTSE NAREIT All REITs Index was 4.31%, which clearly outpaced the 2.05% dividend yield offered by the S&P 500 as of that date. Over long periods too, REITs have outperformed the broader indexes with respect to dividend yields.
Then also, the chosen stocks must be consistent performers. This is because the long-term value of a company is not affected by short-term instability. And with economic indicators still holding strong and market dynamics of individual asset categories playing a pivotal role in REITs’ operating performance, there are scopes to excel. Also, REITs have reduced their exposure to rate hikes and opportunistically used the low-rate environment to make their financials more flexible, which is encouraging down the line for operational efficiencies.
So, here we have handpicked five REITs that have outpaced the S&P 500 index, year to date and are poised to continue their winning streaks in 2019. Aside from having solid fundamentals and a decent dividend yield, these REITs hold a favorable Zacks Rank, which indicates high chances of market outperformance over the next 1-3 months. These stocks are witnessing estimate revisions too reflecting analysts’ positive view on these stocks.
Headquartered in Uniondale, NY, Arbor Realty Trust, Inc. ABR is a REIT and direct lender that specializes in loan origination and servicing for multifamily, seniors housing, healthcare and other diverse commercial real estate assets. Arbor Realty has a Zacks Rank of 1 (Strong Buy) and a dividend yield of 10.84%. Shares of Arbor Realty have gained 15.3%, as against the S&P’s decline of 9.6%, in the year so far. In addition, the stock has seen the Zacks Consensus Estimate for 2019 funds from operations (FFO) per share being revised 4.4% north in two months’ time.
Located in Buffalo, NY, Life Storage, Inc. LSI is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities. Notably, the self-storage asset category is basically need-based and recession-resilient in nature. Additionally, the self-storage industry is likely to continue experiencing solid demand, backed by favorable demographic changes. Further, the stock has a dividend yield of 4.19%. In the year-to-date period, this Zacks #2 Ranked stock has outperformed the S&P index, gaining 7.2%. Moreover, the Zacks Consensus Estimate for 2019 FFO per share moved 1.4% north over the last 60 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Chicago, IL-based residential REIT Equity Residential EQR is focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. The company is poised for growth amid economic recovery and job-market growth, favorable demographics, lifestyle transformation, and creation of households. Moreover, the stock has a dividend yield of 3.21%. In the year-to-date period, this Zacks #2 Ranked stock has outperformed the S&P index, gaining 5.4%. Moreover, the stock’s FFO per share estimate for 2019 moved 1.2% north over the last 60 days.
Glendale, CA-based PS Business Parks Inc. PSB is into ownership, acquisition, development and operation of commercial real estate properties, especially multi-tenant industrial, flex and office space. The company is poised to excel as the industrial real estate market is witnessing improving fundamentals amid growth of e-commerce business and supply-chain strategy transformations. It carries a Zacks Rank of 2 and has a dividend yield of 3.17%. Also, for 2019, PS Business Parks’ Zacks Consensus Estimate for FFO per share has inched up 0.8% to $6.58 in the past two months. Year to date, the stock has gained 6.0%.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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