These 3 Dividend Stocks Fly Below the Radar: Should They Be on Yours?

Hot stocks can be a great investment, but their popularity typically means they trade at a premium. Stocks that fly below the radar, however, often trade at more favorable pricing while still holding ample growth opportunities or paying attractive dividend streams.

Take National Retail Properties (NNN -0.27%), Whitestone REIT (WSR), and Equity LifeStyle Properties (ELS -0.93%). These three real estate investment trusts (REITs) are hardly the hottest or biggest stocks within their respective industries. But all three have fantastic track records, high yields, and abundant growth opportunities.

Here's a closer look at each company and why three Motley Fool contributors believe these real estate investment trusts (REITs) should be on your buy radar for 2023.

33 years of dividend increases and counting

Liz Brumer-Smith (National Retail Properties): Despite the broader market dip that has dragged down plenty of other REITs during the past year, National Retail Properties is up 8%. The net lease REIT is gaining popularity with investors thanks to its stable historical performance and long track record of dividend increases. The company has raised its dividends for more than 33 years straight while also outperforming the S&P 500 over the past 20- and 25-year periods.

National Retail Properties owns and leases roughly 3,300 single-tenant retail properties across 48 states. These net leases, which are usually for 10 years or longer, pass on most financial responsibilities to the tenants, creating reliable income streams for the company. Its tenants include a few major investment-grade companies in addition to smaller more regional operators across nearly 40 different industries. 

The REIT is extremely selective about the properties it buys and the tenants it brings on. Rather than buying and leasing a property with investment-quality tenants, which usually comes at a premium, it acquires properties leased to tenants that are strong candidates for credit upgrades or acquisitions by larger companies. About 16% of its portfolio today is made up of investment-grade tenants all thanks to this strategy.

Net lease REITs don't often see rapid year-over-year growth, but rather steady income they can rely on over the years. That is very valuable in today's volatile economy. The company's portfolio is nearly 100% occupied as of the third quarter of 2022 and the REIT has never seen its occupancy rate fall below 96% over a span of more than 30 years. National Retail Properties also maintains low debt exposure to ensure healthy operations and maintain its nearly 4.7% yield.

Whitestone REIT is a small REIT poised for a big run

Marc Rapport (Whitestone REIT): Whitestone REIT is one of those lesser-known stocks that could be a diamond in the rough. This retail REIT is a fraction of the size of its largest peers, has a less-than-stellar performance record, and just went through some C-suite changes.

But those apparent weaknesses may be among its strengths. Whitestone owns 57 open-air retail centers in fast-growing, affluent areas of Phoenix, Houston, Dallas-Forth Worth, and Austin and San Antonio, Texas.

The financial strength of those areas makes up for the lack of geographic diversity that its peers such as Realty Income and National Retail Properties can boast of with their thousands of properties across the nation.

But like those big REITs, Whitestone's tenant list is anchored by recession-resistant brand names such as Trader Joe's, Whole Foods, Orange Theory, Edward Jones, United Parcel Service, Starbucks, and Safeway.

Whitestone's total return has seriously lagged that of National Retail Properties or Realty Income, and even the benchmark Vanguard Real Estate ETF, since the Houston-headquartered REIT went public in 2010. But I believe that may be about to change.

The company fired its longtime chief executive officers in January 2022 and instituted a series of changes that include separating the chairman and CEO roles, reducing executive compensation, and shrinking corporate debt.

Positive key financial improvements are already emerging. Whitestone has raised its dividend by nearly 12% in the past year, reported occupancy of 92.5% in its third-quarter report, and is forecasting a strong jump of 16% to 19% in funds from operations (FFO) per share when it reports final 2022 totals in March.

The market has noticed. Whitestone's stock price has jumped about 5% so far this year. It also yields about 4.7%. This REIT's improving financials and its presence in high-traffic areas surrounded by high-income neighborhoods should get it on the radar for more income investors.

Equity LifeStyle Properties is more than just another affordable housing REIT

Kristi Waterworth (Equity LifeStyle Properties): I'm a huge fan of real estate equity trusts that provide affordable housing, especially in times like now when rents are difficult for many people to afford. The mobile home sector, I believe, is poised to explode, so of course I'm putting my money into residential REITs that provide affordable housing. One in particular that has my interest right now is Equity LifeStyle Properties.

However, Equity LifeStyle Properties is a lot more than just another mobile home park REIT. Although it earns about 60% of its income from mobile home communities, most of the rest of that income comes from RV parks and marinas. These two very different revenue sources seem to complement each other well.

With a stable base of long-term mobile home occupancy of about 95% for both Q3 2022 and Q3 2021, the mobile home side of the business provides a lot of income for the company to explore the potential of RV parks and marinas. Equity LifeStyle Properties has been focusing on shifting its RV park and marina holdings to longer-term tenants, unlike many parks that cater to transient guests. This helped boost annual membership revenue from $60.5 million in Q3 2021 to $68 million in Q3 2022.  

Even with six properties still closed from damage due to Hurricane Ian as of Q3 2022, Equity LifeStyle Properties has a strong portfolio spread across the U.S. Its focus is primarily on retirees, which is why most of its properties are located in popular retirement locations or near travel destinations. However, with RVing gaining popularity among all generations, the potential for that side of the business is promising. In 2020, the RV Industry Association estimated that 46 million Americans would travel with an RV during that year, but it now forecasts 67 million RV travelers for 2023. It seems like Equity LifeStyle Properties is also not blind to this fact, and it purchased nine additional RV properties between the first quarter of 2021 and the second quarter of 2022, totaling over 3,200 RV sites.  

Although this REIT has been around for decades, it's certainly not one that generally comes up in conversation among investors. It may be due to the unusual mix of property types, but that's exactly what's so smart about it. When demand for travel is high, it can take advantage of that, and when it's not, well, who isn't looking for an affordable rental unit in a nice community?