To put it mildly, the stock market is looking a little frothy these days. All three major stock market indexes are at or near all-time highs, valuations appear stretched (especially among the most widely held stocks), and it can be exceedingly difficult to find attractively priced investments you can buy and hold for years to come.
One big exception to this rule can be found in high-dividend stocks -- and that's especially the case with real estate investment trusts, or REITs. You can find REITs that pay sustainable, high dividends that trade for very attractive valuations right now, and here are two that you can buy a share of for less than $50.
A healthcare real estate stock with tremendous growth potential
Healthpeak Properties (DOC -0.08%) is one of the oldest and largest REITs that specialize in healthcare properties, and it owns three different types. The largest is outpatient medical facilities (think buildings affiliated with major health systems that are filled with physician practices).
Image source: Getty Images.
The second largest property type is lab facilities -- that is, properties where pharmaceuticals and medical devices are researched and developed. The smallest property type is senior housing, but not skilled nursing or assisted living. Healthpeak invests in 'continuing care retirement communities', or CCRCs, which are larger-scale properties that are designed as longer-term residency options.
The past few years haven't exactly been a great growth environment for REITs, with high interest rates making it less attractive to take on debt to acquire or build properties. But Healthpeak has done a great job of finding ways to add value, including the recent acquisition of medical office rival Physicians Realty Trust. But there's a massive market opportunity between the three property types, and with rates widely expected to keep falling, the growth environment could improve dramatically.
As of this writing, Healthpeak offers a 6.4% dividend yield that is well covered by the company's profits (and comes in monthly payments). And speaking of profits, Healthpeak trades for about 10.3 times the company's 2025 funds from operations (FFO) guidance, less than half the average P/E ratio of stocks in the S&P 500. (Note: FFO is the best metric for real estate 'earnings'.)
The right kind of retail
Tanger Factory Outlet Centers (SKT -0.21%) is a type of retail that works in any environment. If you aren't familiar, Tanger is a pure play on outlet malls, with 40 of the open-air shopping centers in its portfolio. The discount-oriented nature makes it rather resistant to recessions, and the 'treasure hunt' aspect of outlet shopping also makes it less vulnerable to e-commerce disruption compared to other types of retailers.
Recent results show just how strong Tanger's business is. Over the past three years, Tanger's core FFO has grown at a 7.5% annualized rate despite a difficult consumer spending environment, and its tenant sales per square foot are 17% higher than they were before the COVID pandemic. And because of the strong traffic to outlet malls, in its most recent quarter, Target achieved 12% rent increases on new and renewal leases. Since tenants typically sign long-term leases, this indicates quite a bit of embedded rent growth in the portfolio as more than half of Tanger's leases mature over the next three years.
Tanger has a very strong balance sheet with debt ratios at the low end of the company's target, and it has a big opportunity to grow. The company both acquires and develops new properties and also sees a big opportunity to acquire land adjacent to its centers to add densification and additional retail partners.
Tanger is also a cheap REIT, especially considering its recent growth. It trades for about 14.6 times the midpoint of its 2025 FFO guidance and has a dividend yield of 3.5%. However, the payout represents just 51% of FFO, a rather low payout ratio for a REIT, so there should be plenty of room for future increases.
Two cheap stocks with massive long-term potential
If you're new to REIT investing, one extremely important point is that these are designed as long-term compounding machines. And a cheap entry point (like the one that exists right now) combined with a long holding period can be a great way to build wealth and grow a passive income stream over time.
