Real estate investment trusts (REITs) are coming off a strong year in 2021. The average REIT delivered an impressive 41% total return last year, which outperformed the S&P 500.
However, this year is a slightly different story as the average REIT is down double digits. That has several trading at more attractive valuations and higher dividend yields. Three REITs that stand out as top buys this month are Crown Castle (CCI -0.72%), Digital Realty (DLR -1.93%), and Realty Income (O -1.08%).
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Connected to a long-term growth trend
Shares of Crown Castle have fallen by about 10% so far this year. That decline comes even though the infrastructure REIT continues to deliver strong results. The communications infrastructure operator grew its adjusted funds from operations (AFFO) per share by 14% last year. That supported an 11% increase in its dividend.
Crown Castle expects to continue growing at a healthy rate in 2022 and beyond. The REIT sees its AFFO per share rising by 6% this year. It expects its growth rate to accelerate in 2023 as customers demand more small cells to support the continued rollout of their 5G networks. This outlook drives the REIT's view that it can grow its dividend by 7% to 8% per year over the long term.
With Crown Castle's stock price declining this year, shares are cheaper and offer a higher dividend yield of 3.1%. Combine that value proposition with the company's long-term growth outlook, and it looks like a great buy this April.
An attractive value for this steady grower
Digital Realty's stock has taken a hit this year, declining more than 15%. Given the steady growth the data center REIT delivered, this slump seems a bit much. Digital Realty grew its core FFO per share by 5% last year. That enabled it to boost its dividend by another 5%, its 17th straight year of increasing its payout.
The REIT expects to continue growing in 2022, guiding for roughly 5% core FFO per share growth at the midpoint of its outlook. One growth catalyst is the company's recent acquisition of a 55% stake in Teraco. The deal values Africa's leading data center provider at $3.5 billion and will accelerate Digital Realty's expansion in that fast-growing region. In addition to that, it's developing several data centers worldwide to drive continued growth.
The decline in Digital Realty's stock now has the data center REIT trading at one of its lowest valuations in quite some time. It has also pushed its dividend yield up to 3.3%. That growth, value, and income combination make it look like an attractive buy this month.
A great REIT for income seekers
Realty Income's stock has held up relatively well this year, with shares only down by about 2%. However, it's still one of the more attractive opportunities for income-seeking investors, given its current yield of 4.2% and long history of growing its dividend.
Realty Income recently announced its 115th dividend increase since its initial public offering in 1994. The REIT has also given its investors a raise in each of the last 98 quarters. That's one of the most remarkable dividend growth streaks in the REIT sector.
The company should have no problem expanding its dividend in the future. Realty Income has a conservative dividend payout ratio and a top-notch balance sheet, giving it plenty of financial flexibility to continue acquiring income-producing commercial real estate. It also has an enormous opportunity set. There are still trillions of dollars in owner-occupied commercial real estate in its core U.S. and Western European markets. The REIT expects to acquire at least $5 billion of real estate this year, which should enable it to continue growing its dividend.
The REIT sell-off is providing investors with some attractive buys
With shares of most REITs sliding back this year, the sector offers better value and higher income yields than at the end of 2021's big run. Several REITs now boast dividend yields above 3%, including Crown Castle, Digital Realty, and Realty Income. Combined with their growth prospects, these REITs look like great buys this April.
