Drop in inflation expectations, global economic growth concerns and prevalent trade tensions are compelling investors to look for safer havens, particularly toward the security of the government bonds, pushing up debt prices and resulting in the fall of bond yields. Also, for the first time since late 2016, the 10-year treasury yields slipped below 2% after Fed chairman Powell held interest rates steady, but kept its options open for any cuts later this year.
President Trump has been keeping the central bank under persistent pressure for lowering of interest rates. However, this time, the Fed kept the benchmark rate unchanged, and dropped the word “patient” in discussing its attitude toward policy, instead. The central bank also pointed out that while on an average, job gains have been solid, economic activity is increasing at a moderate pace.
Moreover, though household spending seems to have picked up pace in recent months compared to the beginning of the year, business fixed investment indicators have been “soft”. Additionally, with inflation still lagging behind the Fed’s target level, the committee has decided to closely monitor the economic situation and make prudent moves for economic expansion.
Further, the argument in favor of an accommodative policy has gathered steam. This is indicated by eight of the 17 members preferring a rate cut this year, while an equal number voting in favor of retaining it, and the other member preferring a hike.
The current scenario brings back interest-sensitive REITs to the limelight, as these are often treated as bond substitutes for their high-dividend paying nature. Particularly, government regulations mandate REITs to disburse at least 90% of their taxable income in the form of dividends to shareholders each year. In addition, dependence of REITs on debt for their business keeps investors optimistic about their performance in case of a rate cut.
These apart, underlying fundamentals of a number of asset categories in the REIT sector have been displaying strength. The occupancy levels of properties are hovering near the record-high marks — indicating solid demand as well as scope for generating steady revenues.
Stocks to Consider
Therefore, backtracking to the REITs and scouting for stocks with better fundamentals and dividend seems an apt choice. We have handpicked stocks based on a favorable Zacks Rank, high dividend yield and other relevant metrics.
Headquartered in Boca Raton, FL, The GEO Group GEO is an equity REIT that specializes in the design, development, financing and operation of correctional, detention and community reentry facilities. It has operations in the United States, Australia, South Africa and the U.K. The GEO Group currently flaunts a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. Also, the Zacks Consensus Estimate for its 2019 FFO per share moved 35.4% north in two months’ time. In addition to this, the stock has a dividend yield of 8.06%.
Arbor Realty Trust ABR, based in Uniondale, NY, invests in real estate-related bridge and mezzanine loans, preferred equity, mortgage-related securities and other real estate-related assets. Currently, Arbor Realty Trust sports a Zacks Rank #1 and has a VGM Score of B. The Zacks Consensus Estimate for the current-year FFO per share moved up 5.1% over the last 60 days. The stock has a dividend yield of 9.02%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Host Hotels & Resorts HST, based in Bethesda, MD, is one of the leading lodging REITs engaged in the ownership, acquisition and redevelopment of luxury and upper-upscale hotels in the United States and abroad. Host Hotels & Resorts carries a Zacks Rank #2 (Buy), at present, and has a VGM Score of A. The Zacks Consensus Estimate for the ongoing year’s FFO per share inched up 0.6%, in 30 days’ time. The stock has a dividend yield of 4.33%.
San Francisco, CA-based Prologis PLD is a leading industrial REIT that acquires, develops, operates and manages industrial properties in the United States and across the globe. This Zacks #2 Ranked stock generated an average positive surprise of 1.02% in terms of FFO per share, over the trailing four quarters. Reflecting upbeat sentiments, the Zacks Consensus Estimate for 2019 FFO per share climbed 1.6% to $3.22 over the past two months. The stock has a dividend yield of 2.60%.
Glendale, CA-based PS Business Parks PSB is into ownership, acquisition, development and operation of commercial real estate properties, especially multi-tenant industrial, flex and office space. The REIT 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, at present. Additionally, PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share jumped 1.5% to $6.71 in a month’s time. The stock has a dividend yield of 2.60%. The stock has a dividend yield of 2.38%.
Here is the year-to-date price performance of each of the above stocks:
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Arbor Realty Trust (ABR) : Free Stock Analysis Report
Prologis, Inc. (PLD) : Free Stock Analysis Report
PS Business Parks, Inc. (PSB) : Free Stock Analysis Report
Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
Geo Group Inc (The) (GEO) : Free Stock Analysis Report
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