Most of us should at least be considering holding some real estate investment trusts (REITs) in our long-term portfolios. Why? Well, because they tend to be good dividend payers, and they also offer a way to invest in real estate easily, without the mess of being a landlord.
Better still, REITs trade just like stocks, so you can buy or sell them easily via any good brokerage. There's no need to hire a real estate agent and wait for a willing buyer. And you can sell any portion of your holding at any time, too. With an actual real estate property, you'll have to sell it all or not sell it.
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Here, then, are some solid and promising REITs to know about and consider.
Understanding REITs
Here are some things about REITs to know -- from our REITS vs. Stocks research report:
- REITs are strong performers: Although stocks have outperformed REITs during the past few years, REITs have outperformed the S&P 500 (^GSPC 1.18%) over the past 20-, 25-, 30-, 40-, and 52-year periods.
- REITs are strong performers due largely to their dividends: By law, REITs must pay at least 90% of their taxable net income in dividends. Thus, they often offer above-average dividend yields.
- REITs tend to be less volatile than the overall stock market: This is because dividend payers, in general, are less volatile -- likely because most companies need to get to the point of having relatively reliable income before they will commit to paying a regular dividend.
- REITs come in many flavors: Many REITs are focused on one or a few kinds of real estate, such as medical facilities, warehouses, data centers, self-storage units, offices, hotels, apartments, retail outlets, offices, industrial spaces, and so on. Thus, investors can focus on the niches they're most bullish on.
Know, too, that there's another kind of REIT -- mortgage REITs, or mREITs -- which provide real estate financing by buying or issuing mortgage securities and collecting interest on them. They are a more complex investment and may not suit those seeking dividend income, despite the tendency of mREITs to offer very high yields.
Some promising REITs to know about and consider
Here, then, are some REITs to know about:
Realty Income (O +0.93%)
This REIT owns many retail locations, along with casinos and more. Its annual dividend yield is about 5.6% -- and unlike most dividend payers, which make quarterly payments, this REIT pays its dividend monthly. (Note that, for context, the S&P 500's yield is only about 1.1%.)
Federal Realty (FRT 0.43%)
This REIT is focused on strip malls and mixed-use buildings, among others, and it yields 4.4%. It's one of the oldest REITs, and has been paying and increasing its dividend for 58 years.
NNN REIT (NNN +0.29%)
This REIT yields 6%, and it has upped its payout for 36 years in a row. Focused on retail properties, it specializes in triple net leases (NNN) -- which require tenants to cover all property operating costs, including routine maintenance, real estate taxes, and building insurance. (This is not uncommon in the REIT world.)
There are many more terrific REITs out there. Below are a few more to consider and read up on if you're intrigued.
- Vici Properties (VICI +1.65%): This REIT, encompassing many casino properties, and yields 6.2%.
- Prologis (PLD 1.38%): This REIT is a major warehouse specialist, and yields 3.1%.
- American Tower (AMT 0.53%): This REIT has long specialized in communications towers and now encompasses many data centers, too. It yields almost 3.9%.
- Digital Realty Trust (DLR 0.57%): If you're bullish on data centers, this REIT specializes in them, and it yields 3.1%.
One more possibility -- REIT ETFs
Finally, know that you can spread your money across many REITs easily, via exchange-traded funds (ETFs) that are focused on REITs. (ETFs are mutual-fund-like securities that trade like stocks.) Some solid REIT ETFs to consider include:
- Vanguard Real Estate ETF (VNQ 0.10%)
- iShares U.S. Real Estate ETF (IYR 0.05%)
- Schwab U.S. REIT ETF (SCHH 0.11%)
- Real Estate Select SPDR Fund (XLRE 0.07%)
- iShares Select U.S. REIT ETF (ICF +0.00%)
Any way you go about it, consider adding some REITs to your long-term portfolio, for both income and growth.
