Which is the better investment: the S&P 500 index or real estate investment trusts (REITs)? Admittedly, it's complicated.
Over longer time frames, REITs have outperformed the S&P 500. For example, over 25 to 52 years, REITs have generated annual returns in the 11% to 12% range, whereas the S&P 500 has delivered annualized returns in the high single digits.
However, over the past decade, the S&P 500 has been the stronger performer. That said, beyond total returns, REITs typically have lower volatility than the broader stock market. Furthermore, certain REIT subgroups have outperformed the broad market.
Hence, it may pay to include a few high-quality REITs within a diversified long-term portfolio. Three strong examples are Realty Income (O +0.67%), Prologis (PLD 1.62%), and Simon Property Group (SPG 0.91%).
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Realty Income pays dividends monthly and has a 32-year track record of dividend growth
Realty Income offers many of the attributes of a typical REIT. Namely, this retail REIT, which owns over 15,500 properties across the U.S. and Europe, places great focus on dividends and dividend growth.
NYSE: O
Key Data Points
Making dividend payments monthly instead of quarterly, Realty Income is a strong choice for investors seeking to generate steady income from their portfolio. In terms of dividend growth, Realty Income has increased its payouts annually for over three decades.
At current prices, this REIT has a forward yield of around 5.3%, with dividends increasing by an average of 3.5% annually over the past decade. For conservative investors seeking steady returns, this REIT is a top choice.
Prologis is a leader in its niche, with a strong dividend and growth track record
Prologis, an industrial REIT, bills itself as "the global leader in logistics real estate." The San Francisco-based company holds interests in over 1.3 billion square feet of warehouse and other logistics space, located across 20 countries.
NYSE: PLD
Key Data Points
With its focus on geographic and property diversification, it's not surprising that Prologis has built a strong dividend and growth track record. In terms of dividend growth, the stock, with a current forward yield of around 3.2%, has increased its dividend for 12 years in a row. Over the past decade, annualized dividend growth has averaged over 10%.
Since its 1994 IPO, Prologis has delivered gains of 481%, versus a 432% gain for the S&P 500. Although the stock has underperformed the S&P 500 in recent years, factors such as lower interest rates and Prologis' big move into data centers could help drive stronger total returns in the years ahead.
Simon Property Group owns high-quality assets and has a solid dividend yield
Simon Property Group specializes in acquiring and owning luxury retail properties such as regional malls and premium shopping outlets. This focus on asset quality has enabled the REIT to avoid many of the headwinds experienced by owners of lower-end retail properties.
NYSE: SPG
Key Data Points
Currently, this REIT has a 4.2% forward dividend yield. Over the past 10 and 20 years, annual dividend growth has averaged 3.1% and 5.5%, respectively.
In terms of growth, Simon continues to pursue acquisitions, including the recent purchase of the remaining 12% interest in competitor Taubman Realty Group that it didn't previously own. As noted on Simon's latest quarterly earnings conference call, management expects the Taubman acquisition to be accretive to earnings starting in 2027.
