These top REIT stocks can help investors weather a downturn.
Parts of the real estate sector can offer insulation against economic downturns. Even though the economy is still in a growth cycle, its recovery from the pandemic is waning, with investors concerned about inflation risks and the persistent delta variant of the coronavirus eroding that growth and potentially even reversing it over time. Cautious investors can be ahead of the curve if they get into defensive positions before economic cycles change. Well-chosen income-generating real estate investment trusts — which buy up property, collect rent and pass at least 90% of their taxable income along to shareholders — can serve as a defensive investment. REITs provide steady income through dividend distributions, which increase investment returns, and are therefore a good metric for how REITs are performing. It’s best to focus on REITs in stable markets like storage, distribution and data centers, and health care facilities because their values are unlikely to experience major fluctuations during an economic downturn. These seven REITs have the promise to deliver positive performance during more challenging economic times.
Equinix Inc. (ticker: EQIX)
Equinix is a public data center REIT that specializes in digital infrastructure and global interconnection services. It serves thousands of customers, including digital leaders like Zoom Video Communications Inc. (ZM), Amazon.com Inc. (AMZN) and AT&T Inc. (T). EQIX’s data centers have strong power capacity, providing reliable interconnection services and affordable connectivity. Equinix also has a more extensive international presence — in the Americas, Middle East, Africa and Asia-Pacific — than many of its competitors. This REIT has a path for continued growth since the expanding global digital infrastructure will spur more demand for data management.
Dividend yield: 1.5%
Americold Realty Trust (COLD)
COLD is one of the world’s largest publicly traded REITs that focuses on connecting food producers to supermarkets, restaurants and other food service providers. It’s also known for being the leading player in the operation, acquisition and development of temperature-controlled warehouses. Americold’s business model is what makes it stand out. The company works with food producers, retailers and service providers globally, providing supply chain solutions as well as technology solutions to provide inventory visibility. COLD also offers transportation consolidation, so inventory can be delivered efficiently. The REIT showed a solid bounceback from the depths of pandemic shutdowns, posting 33% year-over-year revenue growth for the first half of 2021. COLD is also a REIT worth considering during an economic downturn because it’s the most experienced in supply chain services in its space.
Dividend yield: 3.1%
CyrusOne Inc. (CONE)
CONE is a high-growth REIT specializing in data centers. Its operations span industries including health care, technology, retail, energy, entertainment and finance. CONE has a global reach, with data center locations throughout North and South America and in Europe. In its latest earnings report, CONE announced expansions in Madrid and in Frankfurt, Germany, some of the strongest data center markets in Europe. In 2021, CONE has reported strong financial results. In the first quarter, the company recorded a 21% increase in year-over-year revenue, which it followed with an 11% increase in the second quarter. The company has a strong balance sheet, with a gross asset value of more than $9 billion compared to long-term debt of $3.5 billion. Part of the company’s mission statement is devoted to upholding ESG, or environmental, social and governance, principles like energy efficiency and renewable alternatives.
Dividend yield: 2.75%
Life Storage Inc. (LSI)
Life Storage is a veteran in the self-storage business. Since it opened in 1985, LSI has become one of the largest storage operators in the world. The company has seen substantial growth during the pandemic, which accounts for its geographically diversified portfolio and growth strategy. Life Storage has more than 1,000 locations in 34 states and has a wide customer base serving both residential and commercial customers. LSI uses asset recycling to help generate new properties that produce higher revenue growth. LSI also recently raised its dividend by 16%, something that should catch the eye of income investors.
Dividend yield: 2.9%
Crown Castle International Corp. (CCI)
CCI has industry-leading expertise in accelerating network connections, scaling networks and building industrial networks. 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 data usage and the need for more 5G networks, the company’s industry expertise in accelerating network connections and improving technological infrastructure supports this growth trend. CCI’s forward dividend yield is stronger than the market median of 2.3%.
Dividend yield: 3.1%
Duke Realty Corp. (DRE)
DRE’s supply chain expertise includes construction, development, property management and leasing. Duke Realty is an e-commerce preferred developer that stands out as a leader in the distribution space, which gives it an edge since there is going to be a continued need for industrial warehouses that store inventory from e-commerce sales. Plus, one of DRE’s largest tenants is Amazon. With the ongoing demand of e-commerce, Duke will benefit from the industry’s need for large-scale warehouses and distribution centers. Duke Realty has strategically located properties throughout the country that offer access to industrial development sites and mixed-use properties.
Dividend yield: 2%
Welltower Inc. (WELL)
WELL is known for investing in properties that provide services, such as senior housing, outpatient medical facilities and rehabilitation centers, designed to keep patients out of hospitals and reduce health care costs. Welltower has strategic partnerships with industry leaders including Sunrise Senior Living, Cogir Real Estate and Brandywine Living. As expenses for senior health care are expected to rise, WELL is positioned to capture some of that growth. In fact, the health care industry is seen to be recession-proof since it is usually a priority during good or poor economic conditions.
Dividend yield: 3%
REITs that can weather a downturn:
— Equinix Inc. (EQIX)
— Americold Realty Trust (COLD)
— CyrusOne Inc. (CONE)
— Life Storage Inc. (LSI)
— Crown Castle International Corp. (CCI)
— Duke Realty Corp. (DRE)
— Welltower Inc. (WELL)
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