In a low interest rate environment, dividend stocks often come into focus. One type of dividend stock that gets attention is the real estate investment trust (REIT). To gain this status, companies must pay at least 90% of their income to shareholders in the form of dividends. Consequently, investors often look for REITs to buy because such rules lead to higher interest rates. Average yields for REITs have now climbed to 4.06%, more than double the average return of the S&P 500.
Investors should also note that REITs remain a dynamic sector. For example, the advent of e-commerce has hurt retail REITs and boosted industrial REITs as a large portion of retailing moved from malls to warehouses. Also, new REIT sectors sometimes emerge. For example, data center REITs came about to meet the demand for cool, wired, secured real estate to store IT equipment. Such changes bring about new REITs to buy, and these stocks offer opportunities in such emerging industries.
CorEnergy Infrastructure Trust (CORR)
CorEnergy (NYSE:CORR) owns the infrastructure that runs the oil and gas industry. This includes structures such as pipelines, storage terminals and other transmission and distribution-related assets.
Interestingly, as oil and gas prices struggle to gain traction, CORR stock remains one of the REITs to buy as its rise continues in this challenging environment. It now trades at just over $45 per share, a high not seen since 2012. Despite this increase, it trades at a forward price-to-earnings ratio of around 19.5.
Moreover, the recent slump has not hurt profit growth. Wall Street predicts CORR stock will see profits grow by 9.3% and 23.9% next year before a slowdown in subsequent years.
However, this could boost an already generous dividend payment. Right now, CORR stock pays out $3 per share. That yields around 6.6%. Although it has not risen since 2016, the current pace of profit growth could force it higher.
After the current run-up, both revenue and profit growth could plateau. However, it should level off at a point that will still yield current investors a high dividend return.
Crown Castle (CCI)
Among REITs to buy, Crown Castle (NYSE:CCI) specializes in what many call “vertical real estate.” It owns towers throughout the world that make wireless communication possible. CNN Business’s Paul R. La Monica went so far to label Crown Castle and peers American Tower (NYSE:AMT) and SBA Communications (NASDAQ:SBAC) as the “real winners” of 5G. SBA’s CEO expects 5G to provide his industry with “multiple years of solid customer demand and strong growth.”
Hence, it should come as no surprise that CCI stock has risen to about $144 per share. It has increased by about 40% over the last year. Admittedly, this has made CCI a pricey stock as it trades at a forward P/E ratio of about 69.4.
However, for this price, investors can expect to derive both significant growth and income. Analysts predict average profit growth of 21% per year over the next five years.
The dividend has also risen consistently after becoming a REIT in 2014. Investors currently receive $4.50 per year in payouts. This brings its dividend yield to just over 3.1%, higher than either AMT or SBAC stock. Thanks to the 5G buildout, these payouts should continue to grow for years to come.
Essential Properties Realty Trust (EPRT)
Essential Properties Realty Trust (NYSE:EPRT) has only traded for a little over one year. However, this diversified REIT, which specializes in properties with one tenant, has already delivered huge returns for its investors. Restaurants, movie theaters and vet clinics are among the property types it owns.
It debuted at $14 per share in June 2018. Although it saw little price action in 2018, its growth in 2019 has made it one of the best REITs to buy. After last Christmas, it began a steady rise which has now taken it north of $22 per share.
But can that continue for EPRT stock?
Quite possibly, yes. The move higher took its forward P/E ratio to about 34. That may seem elevated. However, with average profit growth estimated at 34.61% per year over the next five years, that multiple appears reasonable.
EPRT stock pays 88 cents per share in dividends. Despite the run-up, that amounts to a yield of around 4%. As a young company, it has only made four quarterly dividend payments in its history. While that has shown no increase, the profit growth rate will force that payout to move higher. As long as that growth continues at its current pace, I think EPRT stock will continue its move higher.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) came about due to the emerging marijuana industry. This has created the need for spaces that provide ideal growing conditions for marijuana. This demand has gone ever higher due to hemp attaining legal status and cannabidiol (CBD) flying off store shelves.
This company owns 21 properties specifically designed for producing cannabis. Over the last two years, IIPR stock has boomed. The yield of about 2.25% may look low by REIT standards; however, these payouts continue to rise. Two years ago, IIPR stock paid shareholders 15 cents per share in dividends every quarter. Now, the quarterly payout has increased to 60 cents per share.
Furthermore, stock price appreciation has seen nearly as much growth. It traded below $20 per share in late 2017. Today it has risen to about $106 per share as of the time of this writing. Moreover, unlike most marijuana stocks now, it trades near its all-time high.
To be sure, IIPR stock carries with it more risk. The forward P/E ratio has risen to 35.6. That comes in low for a cannabis stock, but high for a REIT. However, Wall Street forecasts earnings increases of 128% this year and 74.3% in fiscal 2020. As long as the cannabis industry continues to see massive growth, IIPR stock should follow suit.
Omega Healthcare Investors (OHI)
Omega Healthcare (NYSE:OHI) should make REITs to buy lists for demographics as much as any company-related factor. All things healthcare continue to benefit from the fact that about 10,000 baby boomers per day age into Medicare. Between their growing need for healthcare and help to pay through Medicare, the demand for healthcare-related facilities continues to rise.
Consequently, analysts project a 10% earnings increase for Omega this year. Over the next five years, they believe average profit growth will rise to 15.8%. This will significantly boost the dividend for OHI stock as it has in past years.
That said, investors should treat this as an income stock. Admittedly, the stock price has seen little growth over the last five years. In August 2014, it traded near the $36 per share level. Today, OHI stock sells for just over $39 per share. Moreover, the forward P/E ratio of almost 23 does not make this REIT cheap.
Still, the payout should more than compensate for these shortcomings. The current annual dividend stands at $2.64 per share, a yield of almost 6.75%. Over time, this payout tends to rise steadily. Although it has not increased since the beginning of 2018, the increasing profit should keep the payout moving higher. These profit increases and the demographic trend backing them up make OHI stock one of the better REITs to buy for the foreseeable future.
Ryman Hospitality (RHP)
Although many may not recognize the Ryman Hospitality (NYSE:RHP) name, they do know its flagship property, Nashville’s Gaylord Opryland Resort. They also own four other Gaylord resort properties spread across the country. The company also owns several entertainment venues in Nashville and two others outside of the area.
Investors should place RHP stock on their REITs to buy list, not so much for its excitement, but a track record of mostly steady growth. The stock price has nearly doubled in value over the last five years. Shrinking profits likely contributed to a slight decline in RHP over the previous year.
However, this may have given investors a buying opportunity. RHP stock trades at a forward P/E ratio of about 25.3, thanks to a temporary drop in annual profits. However, after this year, Wall Street predicts an average earnings growth rate of 15.51% for the next five years.
Since its second REIT dividend payment in 2013, the payout has steadily increased. It now pays shareholders $3.60 per year for a yield of just over 4.3%. As the valuation falls and profits and dividends increase, long-term investors should continue to benefit from both a growth and an income standpoint.
Safehold, Inc. (SAFE)
Safehold (NYSE:SAFE) has become one of the REITs to buy for its unique take on property ownership. It specializes in ground leases. They buy the property under the building, leasing it back to the building owner. This unlocks the value of the property under buildings, allowing property holders to hold less equity and push cash to use in other areas. The REIT has applied this strategy to multiple property types.
Since launching their IPO in 2017, SAFE stock and its dividend initially struggled. Moreover, the dividend yield of about 2.1% has remained below REIT averages. However, the stock began to appreciate in 2019. Now trading at about $29 per share, SAFE has appreciated by about 80% since January. Also, the company raised the annual dividend by 2 cents per share in July.
Those increases should continue. Wall Street also predicts profit growth for the next five years will average 42.6% per year. Furthermore, despite this massive growth, it still sells for a forward multiple of about 22.2. As long as SAFE stock can maintain this pace of profit growth, shareholders should benefit from not only the dividend but also a continually rising stock price.
As of this writing, Will Healy did not hold a position in any of the aforementioned securities. You can follow Will on Twitter at @HealyWriting.
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