The S&P 500 is currently offering investors a tiny yield of 1.1%. The average real estate investment trust (REIT) has a yield of 3.9%. You can get yields of as much as 5.7% if you buy AvalonBay (AVB +0.80%), Federal Realty (FRT +1.19%), and Realty Income (O +1.36%).
Each of these REITs is an industry leader in a sector that has been largely unloved on Wall Street. In other words, you have an opportunity to buy the best companies while the entire REIT sector appears to be on sale. Here's why dividend lovers might want to level up their income streams with these three high-quality REITs.
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AvalonBay puts money where it counts
AvalonBay's dividend yield is roughly average for a REIT, currently sitting at 3.9%. And its dividend history isn't quite as good as the other two REITs on this list, as it has trended generally higher for decades, but it hasn't been increased every single year. Still, buying around two shares or so, which is what $500 will get you, could be a solid choice for long-term investors.
NYSE: AVB
Key Data Points
AvalonBay has an impressive track record of shifting between buying, selling, and building apartment buildings as market conditions warrant. It is focused on high-barrier-to-entry markets, where its size and experience give it an edge over smaller players and pricing power with customers. The REIT is a bellwether in the apartment sector because it is exceptionally well-run.
The most recent business shift is to expand into new markets, notably in the Sun Belt, where population growth has been strong. However, much of that expansion is being self-funded by asset sales, as this company proves again that it is adept at allocating capital to support long-term growth. AvalonBay is often afforded a premium valuation, but it is worth paying up for this industry-leading apartment landlord.
Realty Income is the net lease giant
Realty Income has the highest yield on this list, at 5.7%. The dividend backing that yield, meanwhile, has been increased annually for three decades and counting. A $500 investment will get you roughly eight shares of this net lease REIT. (A net lease requires the tenant to pay for most property-level operating costs.)
Realty Income stands out from the net lease pack because of its size. It owns a massive 15,500 properties and sports a market cap more than three times larger than its next closest peer. The REIT's size gives it an edge when it comes to raising capital. It also gives Realty Income the ability to make deals that smaller companies couldn't muster, including acting as an industry consolidator.
NYSE: O
Key Data Points
To be fair, Realty Income is a slow-moving tortoise, which is the downside to its vast size. However, for those looking to maximize yield, that probably won't be a significant issue.
Federal Realty is a Dividend King
Rounding out this list is Federal Realty, the only REIT to have achieved Dividend King status, meaning a company that has raised its dividend annually for more than 50 years. With 58 consecutive annual dividend increases, this strip mall and mixed-use development REIT is in a class by itself. A $500 investment will let you buy around four shares of this REIT and its 4.4% yield.
Aside from being the only Dividend King REIT, Federal Realty stands out for its focus on quality over quantity. With only around 100 properties, it owns a rather small portfolio. However, the average population size and wealth surrounding its properties are higher than those of its closest peers. That's not a fluke; management activity works to achieve this end.
NYSE: FRT
Key Data Points
That effort is really the differentiating factor. Federal Realty is an active portfolio manager, buying assets in need of "a little love," renovating them, and then selling them when the property is fully valued. Maximizing its capital investments is at the core of the business, which is why it has achieved such a long history of success.
If you like owning the most reliable dividend payers, this REIT is as close to a no-brainer as you'll find in the REIT sector.
Step up in an out-of-favor sector
When an entire sector is out of favor, as is the case today with REITs, long-term investors have a great opportunity. While others are throwing the baby out with the bathwater, you can lean in and buy the best-run companies while they are being ignored by Wall Street.
That's the opportunity with AvalonBay, Realty Income, and Federal Realty. If your preferred holding period is "forever," don't miss these REIT opportunities today.
