The surprising move last week by the Federal Reserve to postpone the tapering of the $85 billion per month bond-buying program known as quantitative easing put some very strong wind at the backs of the top real estate investment trusts (REITs). UBS analysts are very clear in their recent research that the shift from tailwind to headwind will be an important one when is does become an obstacle. However, given the fact that even when the tapering begins, the move to raising the actual Fed funds rate may be as far off as 2015, that could leave a lot of room to run for their top stocks to buy.
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The UBS team focuses on REIT names that have very low leverage, strong core growth and the companies that actually serve as developers. They also focus on the companies that have strategic locations around the United States in the top-growing markets, where the business outlook is pointing up. Here are the top stocks to buy for growth and solid dividend.
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Alexandria Real Estate Equities Inc. (ARE) increased its dividend two weeks ago and continues to expand its presence in the ownership, operation, management, development, acquisition and redevelopment of properties for the life sciences industry. The Thomson/First Call estimate for the stock is $75, and investors receive a strong 4.3% dividend. Note that REIT dividends may include return of principal.
Avalonbay Communities Inc. (AVB) owns or holds a direct or indirect ownership interest in 164 operating apartment communities, comprising 45,728 apartment homes in 10 states and the District of Columbia. They are also in the REIT sector that the UBS team favors with apartment communities. The consensus price target for the stock is $144. Investors are paid a 32% dividend.
Education Realty Trust Inc. (EDR) has seen some significant insider buying recently, and that is always a good sign for investors. In fact, over the past month both the chief executive and the chief financial officer have made significant buys. CEO and President Randy Churchey recently added 20,000 shares to his holdings, while CFO Randall Brown added 5,500. The consensus price target for the stock is $10.78, and shareholders receive a very solid 4.7% dividend.
Equity Residential (EQR) is a leader in the multifamily property area, with more than 150,000 units spread across 24 U.S. states. Run by legendary real estate magnate Sam Zell, the company remains a top holding in many REIT manager's portfolios. The consensus price target for the stock is placed at $60, and investors are paid a 2.9% dividend.
General Growth Properties Inc. (GGP) was almost left for dead when the financial crisis hit in 2008. The stock traded at less than $1, and analysts at the time predicted bankruptcy and potential failure for the company. Activist investor Bill Ackman recently sold some of his stake in the mall operator, but still holds a large position. The consensus price target for the stock is $22. Investors are paid a 2.6% dividend.
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Kilroy Realty Corp. (KRC) specializes in the real estate markets in Southern California. The company recently had a successful secondary stock offering and plans on expanding its activity in the lucrative San Diego market. The consensus price objective for the stock is placed at $56.50. Stockholders are paid a 2.8% dividend.
Simon Property Group Inc. (SPG) continues to be a top pick at UBS and most other firms we cover on Wall Street. The firm invests in the real estate markets across the globe. It primarily invests in regional malls, Premium Outlets, The Mills, community/lifestyle centers and international properties to create its portfolio. The consensus price target for this real estate giant is $184. Investors are paid a 3% dividend.
Clearly there will be a point when the Federal Reserve begins its tapering process. It may begin as early as next month or it may not start until the end of the year. The top names to buy on the UBS list will not be immune to rate increases, but they may very well weather them better. For investors looking for solid, dependable income, and the prospect of a growth kicker, REITs always have been a solid choice for a diversified portfolio.