Has your investing experience so far been limited to individual stocks, or maybe baskets of stocks in the form of exchange-traded funds? If so, that's OK. The longer you remain in the stock market, though, the more performance-crimping volatility you'll experience, and the more you're going to wonder about alternatives.
The good news is, you've got choices that can not only help you curb some of this volatility, but do so without undermining your long-term growth. You might even improve your net gains, in fact.
This alternative? Real estate investment trusts, or REITs, for short. Here's everything you need to know about them, and three REITs you need to know about.
Image source: Getty Images.
What's a REIT?
They're bought and sold just like any ordinary exchange-listed stock. They're not conventional companies, though. As their name suggests, real estate investment trusts hold revenue-generating real estate ranging from apartment complexes to hotels to storage facilities to malls to office buildings.
Although they're capital-intensive, they're also ideally suited for supporting reliable dividend payments. Indeed, real estate investment trusts may be better dividend-paying vehicles than the typical dividend-paying company. As long as at least 90% of a REIT's net profits are passed along to shareholders in the form of dividends, this income isn't first taxed at the corporate level. That means that relatively more risk-adjusted income is put into investors' pockets than there would be with dividend-paying stocks of ordinary companies.
The irony? When reinvesting the dividends paid out by real estate investment trusts in more shares of the REIT paying them, these investment vehicles tend to outperform the S&P 500's net returns.
This hasn't quite been the case lately. As The Motley Fool's own in-house research arm points out, for the past 10 years, the S&P 500 has logged an average annual net (with reinvested dividends) gain of 11.1%, versus a mere 7.2% average annual gain for the FTSE Nareit All Equity REIT Index. For the past five years, the S&P 500's average year total return is 15.3%, easily topping the FTSE Nareit's 5.5%.
This was an extraordinary period, marked by unusually low interest rates. For all timeframes in excess of 20 years, the FTSE Nareit All Equity REIT Index outperforms the S&P 500's total yearly net return. As veteran investors know, given enough time, most things return to their long-term norms.
It wouldn't be wrong to start adding some new exposure to the income-generating real estate market to your portfolio right now, in the form of easy-to-own real estate investment trusts.
Here are three REITs you might want to consider buying.
1. Realty Income
It's likely that you regularly set foot on a property owned by Realty Income (O +0.35%) without even realizing it. This REIT owns over 15,500 retail properties covering 349 million square feet leased to over 1,600 different customers, with resilient companies like 7-Eleven, Dollar General, Family Dollar, FedEx, Home Depot, and Walmart among its top tenants. As of the end of the third quarter, it sported a market-leading occupancy rate of 98.7%. It doesn't get much better than that.
NYSE: O
Key Data Points
This isn't the crux of the reason to own a stake in Realty Income, however. Neither is its forward-looking dividend yield of 5.7%, as impressive as the number may be.
The chief reason to buy and hold O shares is this REIT's track record. Not only has it paid a monthly (yes, monthly) dividend like clockwork for the past 55 years, it's raised its total quarterly payout every quarter for the past 28 years. There's little reason to think this streak is likely to end anytime soon, either.
2. American Tower
Have you ever wondered who owns all those cellphone towers you now see so often that you don't even notice them anymore? Most of them aren't owned by the telecom giants themselves. Rather, they're owned and operated by third parties that rent access to them to wireless service providers like Verizon Communications and AT&T.
American Tower (AMT 1.64%) is one of these cell tower owner/operators, and one of the biggest ones to boot. As of the latest count, its portfolio consists of about 42,000 tower sites in the U.S., with more than another 1,200 under agreement for future development. During Q3 2025, this infrastructure generated $2.7 billion worth of revenue, up 7.7% year over year to extend a long-standing growth trend that's been matched by the organization's per-share dividend payment.
NYSE: AMT
Key Data Points
This REIT's forward-looking dividend yield of 4% isn't exactly thrilling. It's a fair trade-off, however, for the certainty that comes with a holding in AMT.
Americans aren't apt to give up their mobile phones at any point in the future. If anything, the need for mobile connectivity access points and infrastructure should only continue growing. Industry advocacy group 5G Americas predicts that the nationwide number of connected cellular devices is set to grow from 278 million now to 459 million by 2030.
3. Digital Realty Trust
Last but not least, put Digital Realty Trust (DLR 0.10%) on your REIT radar.
It's arguably the name with the most net growth potential of the three real estate investment trusts in question. That's because Digital Realty Trust owns and operates data centers, and increasingly, artificial intelligence data centers. It owns more than 300 facilities serving over 5,000 customers, driving its third-quarter top line up 10% to $1.6 billion, keeping it on pace to log a 21st consecutive year of revenue growth.
There's more of the same in the cards for the distant future. An outlook from Global Market Insights suggests the worldwide data center infrastructure industry is poised to grow at an average annual pace of 13.4% between now and 2034.
NYSE: DLR
Key Data Points
DLR's current projected yield of 3.1% isn't exactly thrilling, and the company hasn't raised its full-year per-share payout since 2022. It has instead opted to invest much of its profits in its own future growth at a time when digital infrastructure and hardware have been relatively expensive.
Digital Realty Trust is now making enough top and bottom-line progress to restart dividend growth in the near future. This sets the stage for a restart of significant yearly increases, thanks to the industry's incredible impending growth.
