Real estate investment trusts (REITs) have been magnificent long-term investments. Over the very long term, REITs have outperformed stocks. While they have lagged the market in recent years, a near-term catalyst could give the sector a jolt.
Several top-notch REITs, including Agree Realty (ADC +0.26%), Prologis (PLD 0.60%), and EPR Properties (EPR +0.62%), are currently trading near 52-week lows. That makes them look like great buys, given their compelling dividend yields, growth outlooks, and the potential near-term catalyst of falling interest rates.
Solid growth despite interest rate headwinds
NYSE: ADC
Key Data Points
Agree Realty's stock price sits about 13% below its 52-week-high, close to its low point for the year. That has pushed the retail REIT's dividend yield up to 5%, significantly higher than the S&P 500's 1.4% dividend yield.
Higher interest rates are the main factor weighing on Agree Realty. They've driven down real estate values and increased borrowing costs, making it more challenging for REITs to make new investments.
However, the REIT expects to invest about $600 million into new properties this year, thanks to its strong balance sheet, post-dividend free cash flow, and timely funding. That investment level supports its view it can grow its funds from operations (FFO) by 4% to 5% this year.
It can deliver that solid growth rate without deviating from its core strategy or increasing its risk profile. That should enable Agree Realty to continue increasing its dividend. Meanwhile, as interest rates fall (which could occur later this year), it would take some pressure off its stock price and enable the REIT to ramp up its investment volume.
A near-term slowdown
NYSE: PLD
Key Data Points
Prologis stock currently sits more than 20% below its 52-week high, close to its low for the year. That sell-off has driven the leading industrial REIT's dividend yield up to 3.6%.
The company is battling a couple of near-term headwinds, which caused it to lower its full-year outlook. CEO Hamid Moghadam commented in the first-quarter earnings press release:
While operating conditions are healthy in the majority of our markets, customers remain focused on controlling costs, which is weighing on decision making and the pace of leasing. A volatile and persistently high interest rate environment, together with mounting geopolitical concerns, contribute to this indecision and its short-term effect on net absorption.
However, the company only expects this headwind to last a quarter or two. It remains very positive about its long-term outlook due to strong demand tailwinds and barriers to new supply.
Prologis sees its core FFO growing by 9% to 11% per share annually through 2026 (including by around 8% this year). That should enable it to continue growing its dividend at a healthy rate. With its headwinds likely to fade later this year, Prologis looks like a steal near its 52-week low.
Growing despite a challenging environment
NYSE: EPR
Key Data Points
EPR Properties stock has slumped 14% below its 52-week high, putting it close to its bottom over the past year. The sell-off has driven its dividend yield up over 8%.
The REIT focused on experiential real estate has had to slow its investment pace due to the impact of high interest rates on its cost of capital. The company only expects to invest $200 million to $300 million this year, which is the level it can fund with post-dividend free cash flow, capital recycling, and cash on hand.
It's investing that money into high-return development and redevelopment projects and select acquisitions. That's still enough money to grow its FFO by more than 3% per share this year. This growth outlook supported the company's decision to raise its already enticing monthly dividend by 3.6% earlier this year.
EPR Properties has already lined up $220 million of experiential development and redevelopment projects it expects to fund over the next two years. As interest rates fall, the company should be able to ramp up its acquisition volume. That would enable it to grow even faster in the future, allowing it to continue increasing its attractive dividend.
Buy before rates start rising
Many high-quality REITs, including Agree Realty, Prologis, and EPR Properties, are currently trading near their 52-week lows due to persistently high interest rates. Because of that, investors can scoop up these magnificent investments at bargain prices, enabling them to lock in attractive dividend yields. That potentially sets them up to earn high total returns in the coming years as REIT values improve, and they continue growing their high-yielding dividends.
