Shares of real estate investment trusts (REITs) have gotten hammered over the past year because of the surge in interest rates. However, according to Wall Street analysts who follow the sector, many have fallen much further than they should.
Four that stand out to analysts for their upside potential are Alexandria Real Estate Equities (ARE 0.56%), American Tower (AMT +0.51%), Community Healthcare Trust (CHCT 1.40%), and VICI Properties (VICI +0.26%). Here's why dividend investors will want to look closely at this group.
The headwinds are fading
Shares of Alexandria Real Estate Equities have plunged more than 40% from their 52-week high. That has the office REIT focused on laboratory space trading at around $119 per share. According to analysts polled by FactSet, this price point is 47% below their consensus price target of more than $174 a share. A couple of analysts recently raised their price target on Alexandria's stock, including those from Mizho (from $178 to $180) and Baird (from $162 to $174). They noted that many of the company's headwinds should ease, leading them to believe shares should start recovering.
NYSE: ARE
Key Data Points
In the meantime, investors can lock in a 4.1% dividend yield. That's a high-quality payout that should head higher in the future. Alexandria has increased its dividend by 5% over the past year and has grown it at a 6.5% annual rate over the last five years.
Trading at its best yield in years
American Tower's stock has tumbled over 30%. Shares recently traded around $193, a 26% discount to the analysts' consensus price target of over $243 a share, according to those polled by FactSet. While several analysts have lowered their price targets recently, many still have them well above the current price. The consensus is that shares remain a buy despite the recent headwinds resulting from strong demand for tower space.
Meanwhile, the sell-off has pushed the data infrastructure REIT's dividend yield up over 3.2%, around its highest level in history. American Tower has grown its payout at a more than 20% annual rate since converting to a REIT over a decade ago. While dividend growth has slowed over the years, the company still expects to increase its payout by 10% this year.
NYSE: AMT
Key Data Points
An untimely passing
Shares of Community Healthcare Trust have fallen almost 20% from their peak this year. That has driven the healthcare REIT's stock price down to around $35 a share. That's 25% below the analysts' consensus price target of $44, according to FactSet.
The recent passing of CEO Tim Wallace has been a big weight on the stock. He was instrumental in driving the company's growth because of his relationships with healthcare providers. However, as a Baird analyst noted when Wallace took a medical leave of absence in February, the company has a strong pipeline to drive growth. That led the analyst to raise their price target from $38 to $43. Meanwhile, the company has since promoted its CFO to the permanent CEO role.
With shares down amid the leadership uncertainty, the dividend yield has risen to more than 5%. That's a great yield for a REIT that has increased its payout every quarter since it came public.
A low-risk gamble
After being the only REIT in the S&P 500 to deliver a positive performance last year, shares of VICI Properties have cooled off a bit this year, falling double digits from their 52-week high. That has pushed the casino property owner's stock price down to around $31 a share, about 22% below the analysts' consensus price target of more than $38 per share. A KeyBanc analyst recently upgraded the stock to overweight while setting their price target at $36 per share. The analyst sees an improving internal growth outlook for the company, driven by higher inflation, benefiting its inflation-linked leases.
NYSE: VICI
Key Data Points
Meanwhile, the dividend yield has risen to 4.9%, with the stock cooling off. That's a nice payday from a REIT that has increased its dividend in each of its five years as a public company.
High total return potential
The sell-off in the REIT sector offers investors a silver lining. Dividend yields have risen to more attractive levels. Meanwhile, many REIT share prices trade at a discount to their underlying value, according to analysts. That means they offer a compelling combination of income and share price appreciation potential. That could enable them to produce strong total returns in the coming years, making them look like enticing dividend stocks to buy right now.
