Goldman Sachs Stays Positive on Top Dividend REITs as Sector Boom Continues
We have written in-depth here at 24/7 Wall St. how the plunge in interest rates over the past year has pushed investors into the bond proxy stocks like real estate investment trusts (REITs) and utilities. That move by investors has stretched multiples and prompted some on Wall Street to conclude that everything is overbought and should be avoided.
The analysts at Goldman Sachs that cover REITs have released a new research report in which they raise estimates on many of the top companies for 2020. In fact, for the net lease companies, the analysts raised their estimates for funds from operations a stunning 2%. They also expect the industrial REITs to have the highest funds from operations growth at 6.5%.
We screened the firm’s coverage list for stocks rated Buy that pay the highest distributions to investors. We found four that look like good ideas for income accounts looking for safety and dependable income.
This is among the highest-yielding REITs in the group, and it offers a solid total return proposition for investors. Brixmor Property Group Inc. (NYSE: BRX) is an internally managed REIT that owns and operates the largest wholly owned U.S. shopping center portfolio. Brixmor owns 522 community and neighborhood centers, totaling 86.7 million square feet, in 38 states.
The largest real estate concentrations by state are Texas (11%), Florida (10%) and Pennsylvania (7%). The portfolio is primarily the aggregate of Centro Properties Group United States acquisitions from 2005 to 2007. Centro Properties Group was an Australian-based company with two primary investment arms.
Brixmor Property investors receive an outstanding 6.09% distribution. Goldman Sachs has a $23 price objective on the shares, and the consensus target across Wall Street is $19.68. The shares closed trading on Tuesday at $18.38.
This triple net lease REIT is a solid addition to conservative portfolios. Essential Properties Realty Trust Inc. (NYSE: EPRT) is an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to companies operating service-oriented or experience-based businesses.
As of March 31, 2019, the company had a portfolio of 711 properties with a weighted average remaining lease term of 14.5 years and a weighted average rent coverage ratio of 2.8 times. As of the same date, the company’s portfolio was 99.9% leased to 172 tenants operating 197 different concepts in 16 distinct industries across 44 states.
Shareholders receive a 4.00% distribution. Goldman Sachs has a $25 price objective, which compares to the $22.82 consensus target price. The shares were last seen trading at $21.98 apiece.
Simon Property Group Inc. (NYSE: SPG) invests in real estate markets across the globe. It engages in investment, ownership, management and development of properties. The company primarily invests in regional malls, premium outlets, mills and community/lifestyle centers to create its portfolio.
Through its subsidiary partnership, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.
One key driver of growth will include the over $1.0 billion in development/redevelopment planned over the next few years. Most on Wall Street feel that the company’s high-quality portfolio will continue to weather the retail storms better than most.
Simon Property offers shareholders a 5.56% distribution. The $212 Goldman Sachs price target is well above the $187.89 consensus target. The stock closed at $147.52 a share on Tuesday.
This solid real estate play could hold some very large total return upside. VEREIT Inc. (NYSE: VER) company owns 4,291 properties located in 49 states, as well as the District of Columbia, Puerto Rico and Canada.
The company owns retail, office and industrial assets. In addition to its owned portfolio, the company manages $7.0 billion of gross real estate investments on behalf of the Cole Capital non-listed REITs.
VEREIT investors receive a 5.78% dividend. Goldman Sachs has set a price target at $11. The posted consensus target is $9.50, which is near the most recent close at $9.52.
The bottom line is that, despite the recent market rally, we remain in very volatile waters and the likelihood for a deal with China seems to be ebbing ever farther from completion. With rates going lower, income-starved investors should be moving to these top companies.