5 Top Retail REIT Stocks to Buy in 2017

Real estate investment trusts, or REITs, can be excellent ways to generate income from your stock portfolio while still providing excellent upside potential over the long run. There are several different types of retail REITs to choose from, and here are five that could make excellent additions to your stock portfolio in 2017 and for decades to come.

Stock prices and dividend yields are current as of May 16, 2017.

Image source: Getty Images.

1. Realty Income

Realty Income's primary investment focus are freestanding net-leased retail properties, whose tenants have one or more of three desirable business attributes -- service-oriented, non-discretionary, and/or low-priced. Think of businesses such as fitness centers, drug stores, and dollar stores. These businesses tend to do well no matter what the economy is doing, and are also relatively immune to online competition.

In addition, Realty Income's tenants sign long-term net leases with initial terms of 15 years or more, and the tenants are required to cover the variable costs of property ownership, specifically property taxes, maintenance, and building insurance. What's more, the leases generally have annual rent increases built right in. Realty Income simply puts a tenant in place and enjoys years of predictably growing income.

2. Simon Property Group

Mall REIT Simon Property Group is the largest REIT of any kind. Currently, the company owns or has an interest in about 230 mall properties with roughly 190 million square feet of rentable space.

Simon grows through both acquisitions and development, with a clear preference for the latter, and also invests large amounts of capital into its existing properties, which I consider to be one of Simon's best competitive advantages. Simon prides itself on delivering the best 21st century shopping experience available, and offers modern amenities such as free Wi-Fi, valet parking, and expanded dining and entertainment options.

Since 2000, Simon has produced a 17.6% annualized return and has increased its dividend by a total of 247%. If the company keeps proactively offering the best possible shopping experience to customers, there's no reason to believe the market-beating performance can't continue.

3. Tanger Outlets

Outlet mall REIT Tanger Outlets is probably the best-known company on this list by most Americans, with 44 outlet shopping centers operated under its own brand name.

Perhaps the most compelling reason to invest in Tanger Outlets is that it's a business that works no matter what's going on in the U.S. economy. As president and CEO Steven Tanger says, "In good times people love a bargain, and in tough times, people need a bargain."

This is why Tanger has been able to raise its dividend each and every year since its IPO nearly a quarter-century ago, and has maintained property occupancy above 95% no matter what the economy has done.

4. DDR Corp.

DDR Corp. is probably the riskiest of the five stocks on this list, just because it's in the middle of a restructuring effort. DDR recently put in a new executive team, and the company is in the middle of "streamlining" its operations. However, I believe it also has the most upside potential, at least in the near term as it has been beaten down tremendously over the past year or so.

DDR data by YCharts.

DDR invests in shopping centers, but sticks to a specific type of property that it calls "power centers." These are shopping centers located in large markets, where the tenants are high-quality national companies, and where the anchor stores are focused on value and convenience. Top DDR tenants include value retailer companies such as TJX and Ross Stores, and this type of retail is actually gaining retail market share. For example, there's a DDR-owned shopping center near my home, and it has value retailers Five Below and T.J. Maxx, as well as several popular dining options like Chili's and Outback Steakhouse.

5. EPR Properties

EPR Properties is not a pure-play retail REIT. Rather, it is a diversified REIT that invests in three specific types of properties -- entertainment, recreation, and education.

The entertainment properties, which are primarily megaplex cinemas, and the recreation properties, which include ski parks, water parks, and golf complexes, are the retail side of the portfolio. The investment thesis behind these types of properties is that younger Americans like to spend money on experiences more than previous generations, and the amount being spent on these experiences has been rising (and should continue to do so) as millennials get older.

Furthermore, service-based retail like EPR's properties isn't vulnerable to e-commerce competition like many other areas of retail are.

Obviously, the education properties are not retail-oriented. However, they not only add diversity to the portfolio, but they represent a pretty compelling growth opportunity. Public charter school enrollment (EPR's largest education property type) has grown at a 12% annualized rate over the past 15 years, and there are more than 1 million students still on charter school waiting lists.