Investing

5 Buy-Rated Big-Dividend REITs That Carry Incredibly Low Investment Risk

If there is one problem that most Americans share, it is that we have too much stuff. While in places like the South or warmer regions many people can use their garage for storage, that is not really a solution for those in the North or areas that see large amounts of rainfall each year. The solution for all that stuff? Renting a self-storage unit that is locked, safe and close by, so it is easy to retrieve all that stuff.

The self-storage business is massive, and self-storage real estate investment trusts (REITs) can be outstanding investments. One of the biggest compelling reasons for investors is that when compared to office, business or apartment REITs, the initial and forward fixed costs of doing business can be much less on an annual basis.

The analysts at Stifel are very positive on the group. In a new research report, they feel the future is bright for the industry and had this to say when discussing the stocks under coverage:

We remain Buy rated on all 5 self-storage REITs. All beat our fourth quarter funds-from-operations estimates and recent updates indicate demand remains robust. While REIT 2022 guidance was strong, concerns about same-store net-operating-income (NOI) and bottom-line growth being similar popped up. This implies a drag from non-same store NOI growth that offsets the beneficial impact of financial leverage. We see guidance as management teams being conservative, especially in the second half of 2022, rather than any signal that cracks are appearing. However, we know this high level of growth isn’t sustainable in the long-term. We see two possible causes of a reversal (1) decreasing demand and/or (2) increasing development. Development isn’t a concern yet, 2021 deliveries were below expectations (due to difficulty in finding labor, higher costs, lengthening time for planning/approvals) and are about 22% below peak (per Yardi data). And while move outs are increasing (from historic lows), those newly created vacancies don’t last long (occupancy remains in mid to high 90s). We expect this benign environment to remain for at least the next 12-18 months. Despite this, valuations remain attractive, with Self-Storage REITs multiples only 11% above the REIT Universe (14% historic average), despite the former having two times the growth rate this year.

Even though these five top stocks are rated Buy at Stifel, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

CubeSmart

This REIT may seem an odd beneficiary of rising rates, but it should benefit. CubeSmart (NASDAQ: CUBE) is a self-administered, self-managed REIT. Its self-storage properties are designed to offer affordable, easily accessible and secure storage space for residential and commercial customers. According to the Self-Storage Almanac, CubeSmart is one of the top three owners and operators of self-storage properties in the United States.

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