7 Solid REITs Outyielding the 10-Year Treasury Plus Strong Implied Upside Ahead

April 9, 2019 by Jon C. Ogg

Investors have taken a deep breath since interest rates are no longer rising with a runaway Federal Reserve rate hiking regime. And after a late 2018 sell-off that spooked the investing community, the stock market has risen handily with a major recovery so far in 2019. This has provided a perfect backdrop for investors who want to own safe dividend themes without much expected dividend and interest rate risk. That has allowed the real estate investment trusts (REITs) to flourish.

Investors love dividends, and those dividends can account for nearly half of total returns over time. Investors are attracted to REITs because of what is expected to be stable income and revenue streams ahead, which also translates into stable to higher dividend payouts over time.

REITs as a group currently have an average yield that is close to 4%, more than 150 basis points higher than the 10-year Treasury’s 2.50% yield.

REITs are now handily represented in the S&P 500 Index. According to the NAREIT industry association, the value of REITs in America was most recently at roughly $1.1 trillion. NAREIT also represents that over 80 million Americans own REITs through mutual fund holdings or exchange traded funds.

REITs also have enjoyed a solid 2019, with the S&P United States REIT Index up about 15% so far in 2019, plus the higher income compared with Treasuries and from equities. One problem that REIT investors are starting to run into is that many REITs have share prices right at or above their consensus analyst price targets, and that may have some investors thinking that the shares have by and large run up too fast.

In an effort to find more stable REITs for investors, 24/7 Wall St. has screened the larger ones by market cap, generally above $2 billion, to avoid any of the smaller or riskier names that might not be as well known. We have focused on REITs that have a dividend yield that is handily above the 10-Year Treasury yield of about 2.5% and that also still have upside in the shares to the Refinitiv consensus price target.

As a reminder, REITs are required per their structuring to distribute at least 90% of their taxable income to shareholders each year. That translates to billions upon billions of dollars in investment income that REIT investors can earn, not even considering the potential for strong capital gains.

In alphabetical order, here are seven REITs handily outyielding the 10-year Treasury that have solid businesses and implied upside to their price targets on average.

Annaly: Mortgage/MBS REIT

Annaly Capital Management Inc. (NYSE: NYSE: NLY) is one of the top mortgage-REITs, with a seasoned management team and a portfolio management team when it comes to knowing which mortgage-backed securities (MBS) it should own. It has been public since the 1990s, so it has a longer history than many of the other MBS REITs. Mortgage REITs are considered to be hybrids of financial managers and REITs because they tend to own mortgages, and securities pools and tranches of mortgages, rather than owning and operating properties themselves. Mortgage REITs also generally are considered to be the highest classification of yields of all REIT sectors.

Annaly has a market value of better than $14.5 billion. The $1.20 annualized dividend payout generates a yield of close to 11.9%. Trading at $10.11, it has a 52-week range is $9.57 to $10.78 and a consensus target price of $10.50. Annaly has maintained its $0.30 per share quarterly dividend for roughly six years, but the payout used to be even higher.

Camden: Apartment REIT

Camden Property Trust (NYSE: CPT) is a top Houston-based apartment and multifamily living REIT operator with 159 communities owned and operated covering some 54,000 apartments across the United States. It has a market value of $10 billion, which puts it among the larger apartment REITs.

Camden trades near $101.70, and it has a dividend yield of 3.15% and a 52-week trading range of $82.60 to $102.45. Its consensus price target is $105.40.

Digital Realty: The REIT of the Cloud

Digital Realty Trust Inc. (NYSE: DLR) is effectively the REIT of the cloud, supporting data centers and other connectivity and digital storage services for more than 2,300 clients throughout North America and internationally. Its market cap has reached over $26 billion,

Digital Realty shares recently traded at $121.50. The dividend yield is 3.5%, the consensus target price is $124.81 and the 52-week trading range is $100.05 to $125.10.

Federal Realty: Retail and Mixed-Use REIT

Federal Realty Investment Trust (NYSE: FRT) is a $10 billion or so REIT targeting high-quality retail and mixed-use properties located primarily in major metro markets. One thing that should stand out here is that it is the only REIT in the S&P Dividend Aristocrats Index, in which companies have raised their dividends for 25 consecutive years or more.

Federal Realty has a share price of $137.50 and a 2.95% dividend yield. Its 52-week range is $110.66 to $139.29, and the consensus target price is $141.80.

Host Hotels & Resorts: Hotel REIT

Host Hotels & Resorts Inc. (NYSE: HST) is a hotel REIT. The company’s brand partners include Marriott, Ritz-Carlton, Westin, Sheraton, W Hotels, St. Regis, The Luxury Collection, Hyatt, Fairmont, Hilton and more, with properties in over 50 major markets. Many investors have feared Airbnb as a broad threat to the entire hotel and lodging sector, but the shares have come back strong.

With a share price of $19.15 and a dividend yield of 4.1%, Host has a 52-week trading range of $15.89 to $22.40 and a consensus target price of $21.03. The market cap is more than $14 billion.

Simon Property: Mall REIT

Simon Property Group Inc. (NYSE: SPG) is a top mall-based REIT, which also houses mixed-use, dining and entertainment properties. It had faced many ongoing woes from the likes of Amazon and sales going away from malls, but the current climate seems to have dictated that those who have survived to this point are likely to continue to do so. Now that it has learned to attract anchor tenants, potentially including Amazon and other entertainment-based renters, Simon Property has recovered handily from its lows.

At $182.30 a share, it has an $8.20 annualized yield of about 4.5%. The 52-week range is $145.78 to $191.49, and the consensus target price is $198.83.

Tanger Factory Outlet: Shopping/Outlet Centers

Tanger Factory Outlet Centers Inc. (NYSE: SKT) is an outlet center shopping mall operator with 40 locations in 20 states. This is the sole sub-$2 billion market cap on this list, and that is because its shares have pulled back in recent days to give it a $1.98 billion market cap. And note that Tanger recently sold four more non-core outlet center properties for roughly $131 million, and it has sold a total of 13 non-core properties for $402 million since the end of 2014. The properties represent 6.8% of Tanger’s consolidated square footage and approximately 5.1% of its forecast 2019 portfolio net operating income. Tanger became a public company in 1993, and it has paid a cash dividend each quarter and has increased its dividend each year.

Tanger’s $20.15 share price generates a dividend yield of 6.9%, and it comes in a 52-week range of $19.75 to $24.91. The consensus target price is $21.23.

I'm interested in the Newsletter