Buying Real Estate Investment Trust shares is a way for people with a small portfolio to invest in the real estate sector. The average return is measured against the FTSE NAREIT All Equity REITs index. Over the last 5 years, the total return has been 28.6%. In other words, shareholders can make with REITs an average realty income of 5.2% per annum (as at November 29, 2024).
Dividend income investors buy shares of these companies primarily for the increased cash flow. Here’s a look at the top 6 REITs to buy in 2024.
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Investing in REITs: How to get started
A brokerage account is required for investments. Alternatively, a 401(k) retirement plan may be used if it includes such assets. The amount of commission for purchasing REIT shares depends on the broker you choose.
Stocks must be selected once a brokerage account is opened. Institutional investors are looking for suitable securities, taking into account:
- type and net asset value;
- forward dividend yield;
- outlook for net operating income growth and distribution;
- financial stability, etc.
The financial position is assessed on the basis of several factors. The first is the debt-to-equity ratio. An analog of the dividend payout ratio is also considered. This is the ratio of distributions to funds from operations (FFO).
You can invest in more than just individual stocks. There are ETFs whose net assets are invested in investment trusts. They offer diversification even for a small portfolio.
Various financial experts recommend investing between 2 and 15 percent of one’s income from real estate.
Many ways to collect dividend income from real estate
There are many types of REITs (reit peers) available on the stock market. They are categorized by the type of assets and the type of properties that REITs operate with. For example:
- retail reit;
- residential reit;
- office reit;
- industrial reit;
- mortgage reit.
In addition to publicly-traded REITs, which are available on the stock market like stocks, there are non-public funds. There are several other ways to receive distributions from indirect real estate ownership. For example, there are real estate crowdfunding investments on online marketplaces. Non accredited investors have access to these as well. However, this method is riskier and such investments tend to be illiquid.
Earn More With Dividend Stocks Than With Annuities for Your Retirement
There are 3 reasons why dividend stocks are considered to be a preferred source of income:
- Many companies have a history of increasing dividends over time. Rising dividends can outpace inflation. Annuity payments are a fixed amount.
- For long-term investors, passive income from stocks is generally taxed at a lower rate. However, distributions from REITs typically don’t qualify as qualified dividends. They are taxed at ordinary income rates.
- The final return will be reduced by the payments of the company offering the annuity.
Fixed dividend payments make it easier to plan your spending. This is the benefit of annuities and interest income from deposits and bonds.
How do REITs work?
REITs work much like a mutual fund or exchange-traded fund. A share offering is used to raise funds from investors. The management company invests the capital in real estate. REITs must derive at least 75% of their income from this business.
Investment in the underlying real estate is usually the source of profit. For example, buying properties to generate rental income. Alternatively, mortgage loans are provided.
The profits of a real estate investment trust are distributed to its shareholders. Companies that own real estate are required to pay out at least 90% of their taxable income in the form of distributions.
Two facts follow from this rule. First, REITs pay high dividends. Second, this results in slow capital appreciation compared to growth stocks. Instead of being reinvested in new assets, most of the earnings are used to pay dividends.
An important factor affecting the share price is the change in real estate values. Share prices are also falling due to high interest rates. Morningstar analyst Kevin Brown believes the REIT sector will see positive momentum in the fourth quarter of 2024 due to lower interest rates.
TOP-6 Best-performing REIT stocks: December 2024
Here are the 6 best REITs to buy according to the BeatMarket editorial team. We evaluated them based on their ability to generate stable income.
Federal Realty Investment Trust (FRT)
The Federal Realty Investment Trust invests in real estate property used for retail purposes. Its core assets are shopping centers in attractive locations. Net operating profit for the last 12 months totaled $293 million.
FRT is one of the dividend aristocrats. These real estate stocks pay growing distributions. They have grown for 37 consecutive years.
Key indicators according to beatmarket.com as of December 13, 2024:
- annual d. (FWD) – $4.40;
- profitability – 3.92%;
- Payout Ratio – 1.56%;
- Dividend growth over 5 years – 7%.
Realty Income Corp. (O)
The net asset base of the Fund consists of single-tenant, free-standing properties. These are commercial properties. These properties are leased to retail businesses that are resilient to economic downturns. For example, pharmacies. Total square footage exceeds 335 million square feet.
The Company is classified as net lease REITs. The lessees are responsible for building maintenance, insurance and real estate taxes pursuant to agreements with the lessees.
Realty Income Corp. is included in the S&P 500 Dividend Aristocrats Index. The dividend yield has increased for 27 years.
Key indicators according to beatmarket.com as of December 13, 2024:
- annual d. (FWD) – $3.17;
- profitability – 5.73%;
- Payout Ratio – 100.43%;
- Dividend growth over 5 years – 20%.
An important feature of the company is that it pays a monthly dividend. Most others pay quarterly.
Essex Property Trust Inc (ESS)
Multifamily properties are the focus of Essex Property Trust. The majority of its properties are located in high-demand areas along the coast. The company is both a buyer of finished buildings and an investor in construction.
ESS has increased its dividend every year for 29 consecutive years.
Key indicators according to beatmarket.com as of December 13, 2024:
- annual d. (FWD) – $9.8;
- profitability – 3.29%;
- Payout Ratio – 112.85%;
- Dividend growth over 5 years – 24%.
Kilroy Realty Corp. (KRC)
Kilroy Realty are primarily office REITs. It owns high-quality office and mixed-use properties on the West Coast of the United States. Its assets also include residential and retail properties.
The company has shown continuous dividend growth for 8 consecutive years. The issuer has a low payout ratio and high yields. The latter is largely due to the fact that prices are still below pre-pandemic levels. They have not recovered as there has not been a massive return to the office space after 2022. According to some reports, the vacancy rate in Los Angeles will exceed 34% by the second-quarter 2024.
Based on Morningstar’s Fair Value Estimate as of 14 November 2024, Kilroy Realty Corp. was among the most undervalued companies in its sector (Morningstar Price/Fair Value: 0.70).
Based on Morningstar’s Fair Value Estimate as of December 11, 2024, Kilroy Realty Corp. was among 10 the most undervalued companies in its sector (Morningstar Price/Fair Value: 0.70).
Key indicators according to beatmarket.com as of December 13, 2024:
- annual d. (FWD) – $2.16;
- profitability – 5.28%;
- Payout Ratio – 129.34%;
- Dividend growth over 5 years – 21%.
PotlatchDeltic Corp (PCH)
PotlatchDeltic Corp is a REIT that owns a diversified portfolio of real estate properties. Its holdings include sawmills, plywood manufacturing, timberlands, residential and commercial real estate.
PotlatchDeltic’s distributions have been on a steady growth trajectory for the past 4 years. Diversification and exposure to the manufacturing sector is the main reason for adding this company to the portfolio.
Key indicators according to beatmarket.com as of December 13, 2024:
- annual d. (FWD) – $1.8;
- profitability – 4.18%;
- Payout Ratio – 5.52%;
- Dividend growth over 5 years – 13%.
National Retail Properties Inc (NNN)
The Company’s net assets are based on retail stores. It owns more than 3,500 properties in the U.S., covering a total of 37 retail destinations in 49 states. NNN’s focus on long-term leases provides a steady stream of income.
National Retail Properties has been raising its distribution for 34 years.
Key indicators according to beatmarket.com as of December 13, 2024:
- annual d. (FWD) – $2.32;
- profitability – 5.46%;
- Payout Ratio – 106.02%;
- Dividend growth over 5 years – 14%.
Final Thoughts
A REIT stock is added to a portfolio to increase the current dividend yield. Many of these companies offer stockholders a gradual increase in cash flow. It is also the best option for individuals with limited capital to invest in real estate.
But there are drawbacks to such investments. REITs may grow more slowly than other companies in terms of capitalization. Dividend growth is also lower than in many sectors.
Despite these drawbacks, more than 80% of financial advisors recommend REIT investing to their clients.
FAQ
Which REIT gives the best dividend?
Creative Media & Community Trust Corporation (CMCT) has the highest distribution. As of December 13, 2024, the yield is 84.91%. But over the year, the company’s stock has lost 94.42% of its value. Among the more liquid and successful issuers is Mach Natural Resources LP (MNR). The yield is 22.25%.
What investment has the highest dividend yield?
Many real property related stocks are on the list of appropriate companies for a portfolio. It also includes telecom and oil companies, tobacco producers, and others.
Which REIT has the best returns?
Among the total return leaders is SL Green Realty Corp (SLG). Over the past 12 months, the company has returned more than 147.61% to stockholders, including distributions and share price appreciation.
What REIT does Warren Buffett own?
Berkshire Hathaway’s assets do not include interests in real estate investment companies. This information will be reported on Form 13F-HR as of September 30, 2024.
