As we now encounter that rare beast -- the bear market -- it's a good time to consider some alternatives to simply stashing your cash in a savings account. While it can be tempting to hibernate things out, this one could be around for a while, and a good place to look for good stocks to buy remains the NASDAQ.
While that exchange is ground zero for some of the most beaten-down go-go growth and tech stocks around, it's also home to some real estate investment trusts (REITs), property-owning companies whose stocks provide income that can help ease the pain while waiting for the market to regain some solid ground.
There are 35 REITs trading on the NASDAQ out of about 3,600 total stocks on that exchange. Several are easily outperforming that big, tech-heavy group but are too small for us to comfortably cover. However, there are a couple of REITs, each with market caps of just more than $3 billion, that are doing quite well right now, considering the circumstances, and merit some buyer consideration.
They are Sabra Health Care REIT (SBRA 0.88%), an owner of skilled nursing and senior housing, and Phillips Edison & Co. (PECO 0.66%), one of the country's larger owner/operators of grocery-anchored shopping centers.
Sabra Health Care was up about 10% in total return and its share price was up about 0.4% year to date at this writing, while total return for Phillips Edison (PECO) was up about 1.5%, and its share price down about 3%. Meanwhile, the NASDAQ Composite Index has plummeted about 27% in total return over the same time.
REITs are legally bound to pay at least 90% of their taxable income annually in dividends to shareholders. PECO pays dividends monthly and is yielding about 3.3% right now at a share price of about $32. Sabra Health Care, meanwhile, is yielding an inflation-fighting 8.4% at a share price of $13.64.
Total return combines dividends paid and share price movement. The chart below shows how much effect dividend payouts have on total return for these two stocks compared with the NASDAQ index.
So, why have these stocks proven so resilient, and what about their portfolios and their business says they may continue to outperform like this?
Well, for starters, they both own properties leased to essential businesses, each in segments that don't lend themselves to competition from e-commerce. PECO, for instance, says 72% of its base rent comes from "necessity-based goods and services retailers" and, to speak to the moat around its business, adds that the economic realities facing e-grocer delivery "remain unattractive."
The Ohio-based REIT is also geographically diverse, with its 290 properties scattered across 31 states and a top 10 markets list that includes high-growth metros like Atlanta, Dallas, Tampa, Phoenix, and Washington, D.C.
PECO also touts the ability to release at higher rents and with built-in rent bumps to continue to grow profits from a portfolio that grew by 10 centers and two out parcels from July 2021 through March 2022. That adds to its status as the largest acquirer of such neighborhood centers among its peers from 2018 through 2020.
Then there's Sabra Health Care. Telemedicine may be on the rise, but there's no obvious way yet to replace the sheer imperatives of seniors housing and skilled nursing in a facility when it's necessary. The company is also converting six properties into addiction treatment centers, including a former hotel in Greenville, South Carolina.
That will add diversity and income to this Irvine, California-based operations' collection of triple-net lease and managed-relationship centers that includes 416 properties across the U.S., including 279 skilled nursing/transitional care centers, 109 senior housing facilities, and 28 specialty hospitals and behavioral health centers.
Some dividend-paying shelter from the storm
Sabra Health Care and PECO are also both coming off strong first quarters in which Sabra says it collected 99.5% of its forecasted rents and that occupancy trends at its skilled nursing centers were not adversely affected by the omicron variant of the coronavirus.
PECO, meanwhile, raised its guidance for funds from operations (FFO) to a high end of $2.24 per share for the year and remains relatively cheap with a price/FFO ratio of about 13x.
Their specific financials and the big picture both point to continued solid financial performance for these two REITs as income plays in a market that's especially troublesome for growth stocks.