These top REIT stocks can help investors weather a downturn.
Parts of the real estate sector can offer insulation against economic downturns. Real estate investment trusts — which buy up property, collect rent and pass most of the money along to shareholders — offer a way to tap into different areas of the market, but not all REITs are created equal. During the pandemic, some REITs that own shopping centers, malls, lodging properties and senior living centers have taken a hit and are in recovery mode. Meanwhile, infrastructure, self-storage and industrial REITs have held up relatively well, and data center REITs have actually gained ground. These nine REITs have demonstrated positive performance during the pandemic-induced recession last year.
Equinix (ticker: EQIX)
Equinix is a public data center REIT that specializes in providing digital infrastructure and global interconnection services, with a digital ecosystem, which serves thousands of customers including Zoom Video Communications (ZM), Amazon.com (AMZN) and AT&T (T). EQIX’s data centers have strong power capacity, providing reliable interconnection services and affordable connectivity. Marina Vaamonde, commercial real estate investor and founder of PropertyCashin.com, says Equinix has a strong record of dividend growth. The company boasts a one-year dividend growth of 8% and consistently grows its dividend annually. Vaamonde says Equinix’s international presence, which is stronger than many of its competitors, “bodes well for their future” since the growing reliability for technology will spur more demand for the global need for data management.
Trailing one-year returns: 6.2%
Dividend yield: 1.6%
Americold Realty Trust (COLD)
COLD is a large publicly traded REIT that connects food producers to supermarkets, restaurants and other food service providers. “There are large barriers to entry in the industry, which provides a moat for COLD,” says Peter Zabierek, co-founder and CEO of Sugi Capital Management in Philadelphia. Some of the reasons Zabierek says COLD is a “buy” during an economic downturn are the growth and stability of its platform, the company’s organic growth, its strategic M&A and development pipeline and strong balance sheet. Americold has an advantage in the industry, Zabierek says, given that it’s “one of the largest and most experienced in this space.”
Trailing one-year returns: 29.2%
Dividend yield: 2.24%
CONE’s dividend growth has performed well throughout the past several years as the company shows steady growth since it started paying out a dividend in 2013. The REIT saw revenue growth throughout 2020, and for the past five years, CyrusOne has delivered revenue growth higher than its industry average. Despite its low earnings per share, experts believe it will increase. CONE has entered into forward sales agreements that will result in net proceeds upward of $400 million by the tail end of 2021, according to the company’s fourth-quarter and full-year 2020 earnings.
Trailing one-year returns: 5.3%
Dividend yield: 2.8%
Life Storage (LSI)
Life Storage is a veteran in the self-storage business. Since it opened operations in 1985, LSI has become one of the largest storage operators in the world. The company has seen substantial growth in 2020, which accounts for its geographically diversified portfolio and growth strategy. LSI uses asset recycling to help generate new properties that produce higher revenue growth. The company also boasts strong dividend growth, reporting a 26% quarterly dividend increase over the past five years. “LSI trades at an inexpensive valuation relative to peers despite exhibiting some of the strongest growth and being a first mover in contactless renting (called RentNow),” says Matt Werner, managing director of Chilton Capital Management in Houston.
Trailing one-year returns: 64.9%
Dividend yield: 3.1%
Crown Castle International (CCI)
CCI has industry-leading expertise in accelerating network connections, scaling networks and building industrial networks, among other solutions. The company operates and leases more than 40,000 cell towers, with a presence in most major U.S. cities. This infrastructure connects communities and businesses to wireless services nationwide. With the increase in cellphone usage, and the need for more 5G networks, the company’s “organic growth is inflecting upward as the U.S. cell carriers begin their build-out of 5G networks,” Werner says. The company closed a strong first quarter, raising its outlook for 2021. CCI’s dividend is also stronger than the market median of 2.3%.
Trailing one-year returns: 18.2%
Dividend yield: 2.8%
Realty Income (O)
“O is one of only two REITs to be a member of the S&P High-Yield Dividend Aristocrats Index (with) a credit rating of A- or better,” says Will Reese, head of equity research at UMB Bank. The company focuses on acquiring retail, industrial and distribution properties that it leases out to companies and other commercial properties. “Most of O’s tenants are focused on essential needs retail, such as pharmacies, convenience stores and gas stations, which protects against e-commerce competition and economic downturns,” Reese says. Realty Income’s long-term leases and consistent occupancy levels provide stable, reliable income, he explains. “O has outperformed the (MSCI US REIT Index) over the past two recessions,” Reese adds.
Trailing one-year returns: 44.4%
Dividend yield: 4.06%
Duke Realty (DRE)
DRE’s supply chain expertise includes but is not limited to construction, development, property management and leasing. Reese says Amazon is DRE’s largest tenant. “The move away from brick-and-mortar retail into e-commerce has made industrial warehouses an essential needs business,” Reese explains. With the continued demand of e-commerce Duke will benefit from the industry’s need of large-scale warehouses and distribution centers. “DRE outperformed the REIT index during the most recent recession as they have a new business model versus the 2007 recession where the stock underperformed,” Reese says.
Trailing one-year returns: 35.2%
Dividend yield: 2.2%
WELL is known for investing in properties that provide services that keep patients out of hospitals and reduce health care costs like senior housing, outpatient medical facilities and rehabilitation centers. Welltower has strategic partnerships with industry experts including Sunrise Senior Living, Cogir Real Estate and Brandywine Living, to name a few. As expenses for senior health care are expected to rise, you may be interested in buying WELL since spending among the aging population is set to increase. In fact, the health care industry is seen to be recession-proof since health care is usually a priority during good or poor economic conditions.
Trailing one-year returns: 77.7%
Dividend yield: 3.22%
STAG Industrial (STAG)
In 2020 alone, STAG, which has a more industrial focus, acquired more than 40 buildings for total investment activity of more than $770 million. STAG’s acquisition volume has been increasing for 10 years. The REIT has been able to maintain this activity because it focuses on properties that can generate cash flow. For long-term investors, STAG can provide a mix of income, growth and stable earnings per share growth. STAG has a price-to-earnings ratio of about 27, which is well below the industry’s average. So this could be seen as a value play as well.
Trailing one-year returns: 49.7%
Dividend yield: 4%
REITs that can weather a downturn:
— Equinix (EQIX)
— American Realty Trust (COLD)
— CyrusOne (CONE)
— Life Storage (LSI)
— Crown Castle International (CCI)
— Realty Income (O)
— Duke Realty (DRE)
— Welltower (WELL)
— STAG Industrial (STAG)
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Update 04/27/21: This story was published at an earlier date and has been updated with new information.