Real estate investment trusts, or REITs, are a great way for investors to add real estate exposure to their portfolios without actually buying property. These companies specialize in real estate and pay big dividends, but can be easily bought and sold like any other stock.
Many REIT stocks have struggled due to higher interest rates. These companies borrow to fund growth, and higher rates make that harder (more expensive). This has created buying opportunities in high-quality REITs that will likely bounce back when rates drop.
Here are three blue-chip REITs that are screaming buys in July. They are growing despite higher rates and have durable dividends you can continue to count on.
1. Agree Realty
Retail is a tremendous part of the U.S. economy, giving investors a variety of retail REITs to choose from. Agree Realty (NYSE: ADC) is one of the best. The company acquires and leases properties to some of the most recognizable retailers, including Walmart, Tractor Supply, Dollar General, and Best Buy. Agree Realty owns approximately 2,161 properties, and over two-thirds of its tenant base is investment-grade.
Agree Realty is financially rock-solid. The company has an investment-grade balance sheet and virtually no debt expiring until 2028. That means the company doesn’t have to worry about refinancing debt at higher interest rates anytime soon. Agree Realty’s dividend yields 4.8% at its current share price. A healthy 73% payout ratio (based on estimated 2024 cash profits) supports the dividend.
The company can grow continually because there is a seemingly endless supply of retail buildings to acquire. Analysts expect the business to grow at a low-single-digit rate, enough to pump out steady dividend increases. Shares are also reasonably priced at just 15 times their estimated 2024 cash profits (funds from operations, or FFO).
2. Realty Income
Paying a monthly dividend has made Realty Income (NYSE: O) arguably the most famous REIT. The company has even labeled itself “The Monthly Dividend Company,” making that steady payout a core part of its culture. Realty Income’s reputation isn’t fluff, though. It’s one of the world’s largest REITs, with a $45 billion market cap and a global portfolio of 15,485 properties. Realty Income also focuses on the retail industry. Its typical tenants include grocery stores, convenience stores, drug stores, and retailers.
Realty Income has a stellar history of dividend growth. The company has paid and raised its dividend for 31 consecutive years (every year since IPO), including through the pandemic’s height in 2020 and the financial crisis in 2008-2009. In other words, Realty Income is battle-tested. Its strong financials also offer peace of mind. The company’s balance sheet is comfortably investment-grade with an A- rating. Meanwhile, the dividend payout ratio is a healthy 75% of 2024 estimated FFO.
Investors are looking at a potential bargain in Realty Income today. The stock trades at just 12 times its estimated FFO. Meanwhile, investors should enjoy slow and steady low-single-digit growth moving forward, along with its ironclad dividend, which yields 6% today.
3. Alexandria Real Estate
Real estate comes in many forms — it’s not always consumer-facing. For example, Alexandria Real Estate Equities (NYSE: ARE) owns, operates, and develops innovation campuses, where life science companies and similar tenants lease space for research and development. The company’s real estate portfolio spans just a handful of these campuses in cities across the United States, primarily along the East and West Coasts. The tenants occupying these clusters are developing cutting-edge technology and science or new drugs.
Alexandria Real Estate doesn’t rent to just anyone. 92% of the company’s rental income comes from investment-grade or publicly traded tenants. These innovation clusters are top-quality facilities that give Alexandria Real Estate some pricing power. The company’s FFO has grown by an average of 7% annually for the past decade. Analysts believe FFO growth will slow to a mid-single-digit pace (likely due to higher rates), which could reaccelerate if rates drop.
In the meantime, shares yield 4.4% today. Management has raised the dividend for 14 consecutive years, and a modest 55% payout ratio (using estimated 2024 FFO) leaves room for plenty more increases in the future. Innovation is vital to the life sciences, so it’s hard to imagine this business drying up. The stock trades at just 12 times its 2024 FFO, arguably a bargain given the higher growth potential.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alexandria Real Estate Equities, Best Buy, Realty Income, and Walmart. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.
3 REIT Stocks That Are Screaming Buys in July was originally published by The Motley Fool
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