Interest rates have a significant impact on real estate investment trusts (REITs), and the recent decision by the Federal Open Market Committee (FOMC) to keep interest rates unchanged has left the sector behind. However, there are still some promising options for investors to consider in the real estate market.
Interest rates wreak havoc on REITs, but some good picks stand out
REITs are owners of income-producing properties and issuers of real estate dividend stocks. While they are sensitive to interest rates, they have a long history of strong performance that can match or even exceed major indexes. These companies are diversified, each specializing in specific sectors like cell towers, billboards, warehouses, offices, apartments, and retail space.
The requirement for REITs to pay out at least 90% of their taxable income as dividends in exchange for passing the tax liability to shareholders makes them heavily dependent on debt financing. When the Fed signaled a halt in rate hikes, REITs experienced a rally. However, the lack of clear indications on rate cuts has affected their performance. Despite this, there are still good options worth considering.
One such option is Agree Realty (ADC 2.03%), which has shown resilience through economic cycles. It has an investment-grade balance sheet that allows it to finance growth plans at a reasonable cost. Another potential buy is American Tower (AMT 0.52%), which has consistently outperformed the S&P 500 in total return since the turn of the century. Both companies have experienced management teams and strong growth plans.
The wherewithal and moxie to take advantage and keep it going
Both Agree Realty and American Tower have secured strong positions in their respective sectors, providing recession-resistant and essential space for rent. American Tower operates a global network of cell towers, antennas, and data centers, serving major mobile carriers and thousands of other businesses and organizations. Agree Realty, on the other hand, relies on long-term net leases with investment-grade retailers across various resilient industries.
The reliable demand for their properties and the track record of strengthening portfolios and payouts make these stocks potential bargains for growth and income investors. With a yield of about 3.5% for American Tower and 5% for Agree Realty, investors can enjoy consistent payouts while also benefiting from potential future rallies if interest rates decrease.
Investing in real estate dividend stocks can be a lucrative opportunity, especially with companies like Agree Realty and American Tower that have a proven ability to thrive in different economic conditions. As the market continues to evolve, these stocks offer both growth potential and reliable income streams for long-term investors.
Invest wisely and consider adding these top real estate dividend stocks to your portfolio this February.