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Interest Rate Hikes Almost Over: 7 Beaten-Down Contrarian REITs With Huge Monthly Dividends to Buy Now
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It has been a long year of interest rate hikes, but with both the consumer price index and the producer price index numbers coming in better than expected this week, it is becoming clear that, while painful, the Federal Reserve’s rate hike campaign is working. The good news for investors is that though it is likely the Fed raises rates by 25 basis points again at the meeting in early May, that could be the end of this rate hike cycle. And note that the central bank could hold rates at 5.00% to 5.25% well into next year.
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One great idea now, especially with the Fed closing in on the end of the rate hikes, is real estate investment trusts (REITs). These trusts are a practical way to own commercial and residential real estate, and many pay among the best dividends of any asset class. However most only pay out quarterly (four times a year), so there are at least 90 days between dividends. Since most Americans receive bills that need to be paid monthly, we decided to screen our 24/7 REIT research universe for Buy-rated stocks that pay monthly dividends. We found seven that make sense for income investors looking for dependable distributions and a degree of safety.
For contrarian investors, REITs now may be at the biggest discount in years after the year-long interest rate hikes. While selection is crucial, as the current bank issues could crimp lending, the top companies will survive and offer huge total return potential. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Agree Realty
This top REIT has had a nice run off the lows printed earlier this year and still has potential upside. Agree Realty Corp. (NYSE: ADC) focuses on the ownership, development, acquisition and management of retail properties net leased to national tenants. It specializes in acquiring and developing net-leased retail properties for retail tenants.
The company specializes in the acquisition and development of properties net leased to industry-leading, omnichannel retail tenants. As of December 31, 2022, it owned and operated a portfolio of 1,839 properties, located in all 48 continental states and containing approximately 38.1 million square feet of gross leasable area.
Investors receive a 4.36% distribution. Raymond James has a Strong Buy rating and an $81 target price objective on Agree Realty stock. The consensus target is $77.96, and the stock closed on Thursday at $66.36.
EPR Properties
This REIT invests in some of the most popular entertainment companies. EPR Properties Inc. (NYSE: EPR) is a leading experiential net lease REIT, specializing in select enduring experiential properties in the real estate industry.
EPR Properties is focused on real estate venues that create value by facilitating out-of-home leisure and recreation experiences in which consumers choose to spend their discretionary time and money. It has nearly $6.7 billion in total investments across 44 states. The company adheres to rigorous underwriting and investing criteria centered on key industry-, property- and tenant-level cash flow standards, and it believes its focused approach provides a competitive advantage and the potential for stable and attractive returns.
Shareholders receive an 8.46% distribution. The Strong Buy rating at Raymond James comes with a $45 target price. EPR Properties stock has a consensus target of $44.14, and shares closed on Thursday at $39.58.
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Gladstone Commercial
This stock was hit hard as interest rates charged higher and is offering the best entry point in over a year. Gladstone Commercial Corp. (NASDAQ: GOOD) is a top real estate investment trust (REIT) focused 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 the IPO 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 occupancy has never dipped below 95.0% since the IPO.
Most importantly for investors, Gladstone has a record of success, as exhibited by a history of strong distribution yields, a consistently strong occupancy rate and more than 10 years of paying monthly cash distributions.
Gladstone Commercial stock investors receive a 9.63% distribution. The $18 B. Riley Securities price target compares with a $17.25 consensus target and the most recent close at $12.42.
24/7 Wall St.LTC Properties
This REIT is focused on a sector that is growing fast as the U.S. population ages. LTC Properties Inc. (NYSE: LTC) invests in seniors housing and health care properties, primarily through sale-leasebacks, mortgage financing, joint-ventures and structured finance solutions, including preferred equity and mezzanine lending.
LTC holds 181 investments in 27 states with 29 operating partners. The portfolio comprises approximately 50% seniors housing and 50% skilled nursing properties.
The distribution yield here is 6.70%. The Royal Bank of Canada’s target price is $40, while the consensus target is $37.83. LTC Properties stock closed at $34.73 on Thursday.
Realty Income
This is an ideal stock for growth and income investors looking for a safer, inflation-busting idea for 2023. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.
Realty Income is structured as a REIT, and its monthly distributions are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants. To date, the company has declared 608 consecutive common stock monthly dividends throughout its 54-year operating history and increased the dividend 109 times since its public listing in 1994. It is a top real estate member of the Dividend Aristocrats index.
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Realty Income stock comes with a 4.94% distribution monthly. The Stifel has set its price target at $71, and the consensus target is $70.57. The closing share price was $61.53 on Thursday.
SL Green Realty
This is a leading large-cap office REIT that top analysts on Wall Street prefer now, and it is a solid and somewhat contrarian play. SL Green Realty Corp. (NYSE: SLG), Manhattan’s largest office landlord, is a fully integrated REIT focused primarily on acquiring, managing and maximizing value of Manhattan commercial properties.
As of December 31, 2020, it held interests in 88 buildings totaling 38.2 million square feet. This included ownership interests in 28.6 million square feet of Manhattan buildings and 8.7 million square feet securing debt and preferred equity investments.
Shareholders receive a 13.91% distribution. SL Green Realty stock has a $30 target price at BMO Capital Markets. The $31.50 consensus is higher, but the stock ended Thursday’s session at $23.32.
STAG Industrial
This strong industrial REIT play offers solid upside potential. STAG Industrial Inc. (NYSE: STAG) is a self-managed full-service real estate company primarily focused on the acquisition, ownership and management of single-tenant, Class B warehouses in secondary markets across the United States. The company continues to focus on expansion of its acquisition platform to find acquisitions to grow the portfolio.
Top Wall Street analysts expect management to be aggressive acquirers over time. Additionally, the in-place portfolio should deliver stable organic growth supported by healthy property-level fundamentals.
Investors receive a 4.53% distribution. The Raymond James price objective is $36. The consensus target was last seen at $36.75. STAG Industrial stock closed on Thursday at $32.71.
Shares of these top companies are way off the highs printed this time last year, and all seven have paid dependable dividends for years. While some mortgage REITs also pay monthly dividends, they are more vulnerable to a shake-out in a volatile environment, and we wanted to focus on the companies that had hard assets. It is important to remember that REIT distributions may contain return of principal in their monthly distribution payments.
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