While the market had a back-and-forth session Wednesday, the truth is that a bigger correction is probably on the way. When you get a pocket of strength, it makes sense to shift to assets that work well in a market not being pushed higher with central bank stimulus. One of those asset classes is real estate investment trusts (REITs). They combine the hard assets of real estate, in many forms from apartments to self-storage, and a flow of dependable income.
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In a new report, well-respected analyst Jill Carey Hall of the BofA Securities Equity and Quant strategy team notes that many clients are shifting their strategy for income-producing assets. The report said this:

Since the ascent in the 10-year Treasury yield began in early December clients have shifted from buying bond-proxy Utilities stocks to Real Estate stocks (which we’ve found have typically outperformed in Late Cycle regimes and offer inflation-protected yield/dividend growth). While positioning has continued to rise since the GICS breakout, Real Estate remains underweight by fund managers.

If the segment is underweight by fund managers, that means there is a solid chance they will be adding the top companies soon, as we are clearly in the last of the cyclical bull market rally that began in the spring of 2020. We screened our 24/7 Wall St. research database looking for the highest-yielding REITs and found five top companies that growth and income investors should consider now. Remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Gladstone Commercial

This company recently announced a distribution increase for the fourth quarter. Gladstone Commercial Corp. (NASDAQ: GOOD) focuses on acquiring, owning and operating net leased industrial and office properties across the United States.

As of June 30, 2021, Gladstone owns a diversified portfolio of 121 office and industrial properties located in 27 states and leased to 106 tenants. The company has grown the portfolio in a consistent, disciplined manner at a rate of 18% per year since going public in 2003. It matches long-term leased properties with long-term debt to lock in the spread to create a durable, stable cash flow stream to fund monthly distributions to shareholders. Current occupancy stands at 96.5%, and that occupancy has never dipped below 95.0% since 2003.

Most importantly for investors, Gladstone has a track record of success, as exhibited by a history of strong distribution yields, consistent occupancy and more than 10 years of paying continuous monthly cash distributions.

Investors receive a 6.12% distribution. Colliers Securities has a Buy rating and a Wall Street high $26 price target, which may be headed higher soon. The consensus target is $25.00, and the last trade for Wednesday was reported at $24.09.

Income investors should take a long look at this company. Global Medical REIT Inc. (NASDAQ: GMRE) engages in the acquisition of purpose-built health care facilities and leasing of those properties to strong health care systems and physician groups.
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The company acquires off-campus health care facilities at 7.0% to 8.5% cap rates, funded with a low- to mid-6% cost of equity, and it draws on its credit facility (low-2% current cost of debt). Collections have outperformed expectations during the pandemic. Cost of capital is tied to benefits of diversification and external growth potential.

Inventors receive a 4.80% distribution. B. Riley Securities has an Overweight rating and an $18 price target. The consensus target is $18.67, and the last trade on Wednesday was at $17.12 a share.

Medical Properties Trust

This stock may offer investors the best value at current price levels. Medical Properties Trust Inc. (NYSE: MPW) acquires, develops and invests in health care facilities and leases health care facilities to health care operating companies and providers. The company also provides mortgage loans to health care operators, as well as working capital and other term loans to its tenants/borrowers.

With a growing portfolio and a versatile business model, the company continues to rank high across Wall Street. The analysts noted that the company’s acute care hospitals rent coverage increased nicely and the company attributed the increase to better cost controls and higher patient admissions.

Shareholders receive a 4.71% distribution. The Raymond James Strong Buy rating comes with a Wall Street high $26 price target. The consensus target is $24.64. The shares closed trading on Wednesday at $23.33.

MGM Growth Properties

This company is a triple net lease REIT formed in April 2016 when it was spun out of MGM Resorts. MGM Growth Properties LLC (NYSE: MGP) is one of the leading publicly traded REITs engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts with diverse amenities including casino gaming, hotel, convention, dining, entertainment and retail offerings.
The company, together with its joint venture, currently owns a portfolio of properties, consisting of 12 premier destination resorts in Las Vegas and elsewhere across the United States; MGM Northfield Park in Northfield, Ohio; Empire Resort Casino in Yonkers, New York; as well as a retail and entertainment district, The Park, in Las Vegas.
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The destination resorts collectively comprised approximately 27,400 hotel rooms, 1.4 million casino square footage, and 2.7 million convention square footage. As a growth-oriented public real estate entity, the company expects its relationship with MGM Resorts and other entertainment providers to position the company attractively for the acquisition of additional properties across the entertainment, hospitality and leisure industries.

Shareholders receive a 5.52% dividend. The $43 Deutsche Bank price target on the Buy-rated stock is above the $40.75 consensus target. The share price was last seen on Wednesday at $37.69.

W.P. Carey

This is a large net lease REIT with an incredible distribution for income investors. W.P. Carey Inc. (NYSE: WPC) ranks among the largest net lease REITs, with an enterprise value of approximately $18 billion and a diversified portfolio of operationally critical commercial real estate that includes 1,215 net lease properties covering approximately 142 million square feet, as of September 30, 2020.

For nearly five decades, the company has invested in high-quality single-tenant industrial, warehouse, office and retail properties subject to long-term leases with built-in rent escalators. Its portfolio is located primarily in the United States and northern and western Europe, and it is well diversified by tenant, property type, geographic location and tenant industry.

Net lease REITs generally rent properties with long-term leases (10 to 25 years) to high credit-quality tenants, usually in the retail and restaurant spaces. “Net lease” refers to the triple-net lease structure, whereby tenants pay all expenses related to property management: property taxes, insurance and maintenance.

Investors receive a 5.37% distribution. The Wells Fargo rating is Overweight with a big $90 price target. The consensus target is $86.38, and the shares ended Wednesday trading at $77.56 apiece.

These five top companies pay dependable distributions at or above the 4.5% level. With the prospect of continued low interest rates, despite the Federal Reserve plans for hiking this year, and the stock market extremely risky and overbought, it makes sense to have solid assets like real estate. It is important to remember that REIT distributions can contain return of principal.

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