Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio. Buying physical properties can be costly, difficult and risky for an individual. Instead, investors can buy shares of diversified real estate investment trusts, or REITs. REITs are public companies that own large portfolios of real estate and pay healthy dividends with the income from those properties. There are many different types of REITs, providing investors access to residential, commercial and specialty real estate.
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Here are nine of the best REITs to buy heading into 2024, according to Morningstar analysts:
| Stock | Forward dividend yield | Implied upside from Dec. 11 close |
| Crown Castle Inc. (ticker: CCI) | 5.5% | 13.5% |
| Welltower Inc. (WELL) | 2.8% | 17% |
| Simon Property Group Inc. (SPG) | 5.6% | 12% |
| Public Storage (PSA) | 4.3% | 15.8% |
| Realty Income Corp. (O) | 5.7% | 39.7% |
| Extra Space Storage Inc. (EXR) | 4.7% | 19.5% |
| AvalonBay Communities Inc. (AVB) | 3.8% | 32.8% |
| Equity Residential (EQR) | 4.6% | 49.6% |
| Invitation Homes Inc. (INVH) | 3.4% | 23.2% |
Crown Castle Inc. (CCI)
Crown Castle is a specialty REIT that owns and operates wireless communications towers. Analyst Matthew Dolgin says Crown Castle’s soft 2024 guidance isn’t as bad as it seems at first glance because its growth projections are based on 2023 comparisons that include significantly higher non-cash revenue and a lump-sum payment from T-Mobile US Inc. (TMUS). Dolgin says small cell leasing is improving, and Crown Castle shares are considerably undervalued. He says Crown’s small cell communication sites and focus on the U.S. market differentiate it from competitors. Morningstar has a “buy” rating and $130 fair value estimate for CCI stock, which closed at $114.52 on Dec. 11.
Dividend yield: 5.5%
Welltower Inc. (WELL)
Welltower is a health care REIT that invests in health care facilities, including senior housing, specialty care facilities and medical office buildings. Including dividends, WELL is up 38.5% through Dec. 11, the best 2023 performance of any stock on this list. Welltower closed $1.4 billion in acquisitions in the third quarter and another $922 million in acquisitions prior to its earnings call. Analyst Kevin Brown says the broad recovery in senior housing following a major COVID-19 pandemic downturn is driving impressive same-store occupancy growth for Welltower. Morningstar has a “buy” rating and $103 fair value estimate for WELL stock, which closed at $88.07 on Dec. 11.
Dividend yield: 2.8%
Simon Property Group Inc. (SPG)
Simon Property is a retail REIT that specializes in regional malls, outlet centers, and community and lifestyle centers. Brown says Simon’s deal to reduce its ownership stake in the SPARC Group joint venture from 50% to 33% generated an impressive return for investors and reduced Simon’s earnings volatility. He says Simon’s plan to monetize its retail investments over time and use the proceeds to buy back stock will create significant long-term value for shareholders. Morningstar has a “buy” rating and $151 fair value estimate for SPG stock, which closed at $134.78 on Dec. 11.
Dividend yield: 5.6%
Public Storage (PSA)
Public Storage is a specialty REIT that is the largest owner of self-storage facilities in the U.S. Analyst Suryansh Sharma says Public Storage’s 2.5% same-store revenue growth in the third quarter is a significant slowdown as the self-storage industry has begun to cool off following two years of exceptional pandemic-fueled performance. Sharma says the company has a diversified portfolio of storage facilities, as well as a lucrative insurance business that creates value for investors. He says self-storage stocks are excellent defensive investments during uncertain economic periods. Morningstar has a “buy” rating and $317 fair value estimate for PSA stock, which closed at $273.83 on Dec. 11.
Dividend yield: 4.3%
[READ: 8 Best Real Estate Stocks to Buy.]
Realty Income Corp. (O)
Realty Income is a retail REIT that owns, develops and manages U.S. retail real estate with a focus on single-tenant buildings. It is the largest triple-net REIT in the U.S., meaning tenants pay all the property expenses, including real estate taxes, maintenance and building insurance. Realty Income has a 5.7% dividend yield and makes monthly dividend payments, making it an attractive income source. Brown says he is bullish on Realty’s pending merger with Spirit Realty, which he says will add value for shareholders. Morningstar has a “buy” rating and $76 fair value estimate for O stock, which closed at $54.39 on Dec. 11.
Dividend yield: 5.7%
Extra Space Storage Inc. (EXR)
Extra Space Storage is one of the largest publicly traded self-storage REITs. In addition to its self-storage facilities, Extra Space has a profitable insurance business and a strategic third-party management business. High interest rates are hurting Extra Space, given about 30% of the company’s total debt is variable-rate debt. Sharma says Extra Space’s large third-party management business has allowed the company to increase its data sophistication and scale without major capital investment. He says national trends, such as downsizing, moving and adding space, will support self-storage demand. Morningstar has a “buy” rating and $165 fair value estimate for EXR stock, which closed at $138.12 on Dec. 11.
Dividend yield: 4.7%
AvalonBay Communities Inc. (AVB)
AvalonBay Communities is a multifamily residential REIT that specializes in upscale apartment communities. Brown says it’s encouraging that AvalonBay can still find high-yielding development projects when construction costs are so high. The company grew rental rates, same-store revenue and same-store net operating income by more than 5% each in the third quarter, but same-store operating expenses were also up 5%. Brown says he is confident AvalonBay management can achieve its targeted yield on its current development projects given the company’s impressive track record. Morningstar has a “buy” rating and $233 fair value estimate for AVB stock, which closed at $175.41 on Dec. 11.
Dividend yield: 3.8%
Equity Residential (EQR)
Equity Residential is a multifamily residential REIT that owns and operates a diversified portfolio of apartment properties. Brown says write-offs of unpaid rent as uncollectible weighed on Equity’s same-store revenue growth in the third quarter. The company’s net bad debt has increased in the past year, but Brown says that increase comes from the elimination of government rental assistance programs. Gross bad debt has trended lower throughout 2023, a trend Brown says indicates healthier tenants. He says Equity Residential has consistently recycled capital to generate strong returns. Morningstar has a “buy” rating and $87 fair value estimate for EQR stock, which closed at $58.17 on Dec. 11.
Dividend yield: 4.6%
Invitation Homes Inc. (INVH)
Invitation Homes owns, operates and leases single-family U.S. homes. Brown says Invitation’s expenses remain elevated, and 4% same-store operating income growth in the third quarter was disappointing. However, Invitation Homes reported 2,257 home acquisitions in the quarter, more than double the company’s previous record for quarterly acquisition volume. Brown says elevated housing prices relative to rental rates support high occupancy levels for Invitation Homes and should provide opportunities for rent hikes. Invitation also hires its own maintenance and repair technicians, supporting overall operating margins. Morningstar has a “buy” rating and $41 fair value estimate for INVH stock, which closed at $33.28 on Dec. 11.
Dividend yield: 3.4%
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9 of the Best REITs to Buy Now originally appeared on usnews.com
Update 12/12/23: This story was previously published at an earlier date and has been updated with new information.
