We're going to look at last year's six best-performing real estate investment trusts (REITs). Winners tend to keep winning in the stock market, so you might find one or more stocks here that you'd like to buy, or at least put on your watch list.
In exchange for the special tax treatment they receive, REITs must distribute at least 90% of their taxable income each year as dividends to shareholders. That makes them an excellent group for income investors to hunt among for stocks. The stocks below currently have yields ranging from 1.5% to 4.8%.
Image source: Getty Images.
The 6 top-performing REIT stocks of 2019
These companies are ranked based upon their returns last year. To be included on the list, they had to have a market cap of at least $1 billion at the time of this writing. (I made an exception for No. 5 since its market cap is extremely close to that level.) This criterion was included to screen out very small companies, which tend to be riskier investments.
|
Rank |
Company |
Market Cap |
Dividend Yield |
Projected 5-Year Annualized EPS Growth* |
2019 Return |
3-Year Return |
|---|---|---|---|---|---|---|
| 1 | Safehold (SAFE) | $2.0 billion | 1.5% | 36.9% | 118% | N/A |
| 2 | Universal Health Realty Income Trust (UHT 2.62%) | $1.7 billion | 2.3% |
N/A |
96.9% | 108% |
| 3 | Essential Properties Realty Trust (EPRT 1.78%) | $2.4 billion | 3.6% | 34.5% | 86.8% | N/A |
| 4 | Hannon Armstrong Sustainable Infrastructure Capital (HASI 3.23%) | $2.2 billion | 4% | 4% | 77.1% | 107% |
| 5 | Innovative Industrial Properties (IIPR 2.62%) | $984 million | 4.8% | N/A (Current year: 135%; next year: 129%) | 72.5% | 389% |
| 6 | Equinix (EQIX 0.48%) | $50.8 billion | 1.7% | 10% | 68.9% | 68.7% |
|
|
S&P 500 |
-- | 1.8% | -- | 31.5% | 54.8% |
Data sources: Yahoo! Finance and YCharts. EPS = earnings per share. *Wall Street's consensus estimates. Over the long term, EPS growth tends to provide a decent indication of funds from operations (FFO) per share growth. FFO is a key metric for REITs, as it drives dividend changes. Data as of Jan. 16, 2020.
A motley bunch of winners
The stocks on the list are a diverse bunch. Moreover, Safehold, Hannon Armstrong, and Innovative Industrial Properties are unique among REITs in general.
Safehold touts itself as the first publicly traded company to buy, own, and capitalize ground net leases (GNLs), which "generally represent ownership of the land underlying commercial real estate projects," according to the company. As you might expect, Safehold is focused on an area where commercial real estate is ultra-pricey: New York City, which is also where it's headquartered. Safehold was founded in 2016 and held its initial public offering in 2017.
Universal Health Realty Income Trust has a broad healthcare focus, as it invests in acute-care hospitals, rehabilitation hospitals, medical office buildings, and free-standing emergency departments. It was founded in 1986 and went public the next year.
Essential Properties Realty Trust's name provides a clue to its investment focus: entities that provide products or services that are rather essential to the lives of many folks. It buys single-tenant properties and rents them to middle-market companies, including restaurants, car washes, providers automotive services and medical services, and convenience stores. It was founded in 2016 and went public in 2018.
Hannon Armstrong Sustainable Infrastructure Capital "focuses on solutions that reduce carbon emissions and increase resilience to climate change by providing capital to the leading companies in the energy efficiency, renewable energy and other sustainable infrastructure markets," according to its website. It was founded in 1981 and went public in 2013.
Innovative Industrial Properties, or IIP, is focused on the cannabis sector. It buys properties in U.S. states where medical marijuana is legal and primarily rents them to companies that grow and/or process cannabis. While the vast majority of its properties are industrial, the company has recently added a few retail facilities to its portfolio. IIP was founded in 2016 and went public later in the same year.
Equinix is a leading global operator of data centers, which it claims are the world's most interconnected. The company was founded in 1998, went pubic in 2000, and converted to a REIT at the start of 2015.
Are any of these REITs worth buying in 2020?
I'd be cautious about Hannon Armstrong given that its earnings growth is projected to average a paltry 4% annually over the next five years. That said, Wall Street's estimates are just that: estimates. Of course, investors who are much more concerned with income than long-term total capital appreciation might find the stock potentially interesting thanks to its 4% dividend yield.
All the other stocks seem at least worth putting on your watch list. Due to its large size and well-established nature, Equinix is the best bet among the group for more conservative investors. Of course, its more stable nature is reflected by the fact that its dividend -- now yielding 1.7% -- falls on the lower end of the spectrum for REITs. Conversely, Innovative Industrial Properties is probably the most interesting stock among the group for more risk-tolerant investors. Its high dividend yield -- currently 4.8% -- reflects the more volatile nature of the industry it serves.
