Well, the Fed hasn't begun dropping interest rates yet, instead keeping the benchmark federal funds rate unchanged for the fourth straight meeting when the Federal Open Market Committee (FOMC) met on Jan. 24.

That's still good news for the stock market in general, which rallied into a bull market when the Fed began indicating last fall that rate cuts were coming, as many as four in 2024 alone. But the FOMC is not declaring victory yet in its war on inflation, and it didn't make any promises on when the cuts would begin, and that has helped to leave one particular sector behind: real estate investment trusts.

Since the Fed meeting on Jan. 24, the S&P 500 has risen another 1.4% or so, while the CRSP US REIT Index has fallen by about 0.7%. That adds to the lag that publicly traded REITs have seen since the current bull began in October, as seen below.

^CRUSREIT Chart

^CRUSREIT data by YCharts.

Interest rates wreak havoc on REITs, but some good picks stand out

REITs own income-producing pools of property. They're also issuers of real estate dividend stocks that compete with bonds for investor attention. However, they themselves can build long records of strong performance that put them in league with the greater market, sometimes equaling or surpassing the total return of major indexes.

Some are broadly diversified, while most specialize in certain sectors, ranging from cell towers to billboards to warehouses, offices, apartments, and retail space.

They're all particularly sensitive to interest rates because they're required to pay out at least 90% of their taxable income as dividends in exchange for the ability to pass the tax liability on to shareholders. As a result, these passive-income machines tend not to hold onto much cash and must finance their acquisitions by taking on debt.

When the Fed signaled it would quit raising rates, REITs rallied. That rally ended when the cuts failed to materialize with no clear indication of when they would begin. But that doesn't mean there are no good buys to consider here. I think you should consider Agree Realty (ADC -0.51%) and American Tower (AMT -0.98%).

^SPXTR Chart

^SPXTR data by YCharts.

The chart above shows how each REIT has nearly doubled the S&P 500 in total return since the turn of the century. And while that's no guarantee of future performance, they both have shown resilience through economic cycles. They have the investment-grade balance sheets to continue financing their growth plans at a reasonable cost, along with the seasoned, accomplished management to execute successfully on those plans.

The wherewithal and moxie to take advantage and keep it going

This all begins with the opportunities to exploit, and both American Tower and Agree Realty have just that, staking strong positions in their respective sectors with recession-resistant, must-have space to rent and reliable markets to serve.

In American Tower's case, that's consistently adding to its worldwide network of about 225,000 cell towers, small antennas, and data center space leased out to all the major mobile carriers and thousands of other high-tech and traditional businesses, government agencies, and other organizations.

Agree Realty, meanwhile, counts on the fortunes of the retailers who sign long-term net leases for its portfolio of 2,135 properties in 49 states. The majority of that space is leased to investment-grade brand names across inflation- and e-commerce-resistant businesses, such as grocery, convenience, and home improvement stores.

Reliable demand for their space and the proven ability to strengthen their portfolios and payouts make their current prices look like potential bargains, particularly for growth and income investors looking for long-term buys this month.

American Tower is currently yielding about 3.5% and Agree Realty about 5%, and they both have been raising their payouts consistently. They are also poised to rally should rates start ratcheting down.