In this article, we will discuss some of the best REIT dividend stocks to invest in.
In the United States, real estate investment trusts (REITs) play a significant role in the real estate sector and the overall financial system. Equity REITs pool funds from numerous investors to purchase and manage income-generating properties, such as residential, commercial, and industrial real estate. These REITs are publicly traded on major stock exchanges, allowing investors to earn steady income—primarily from rental revenues—without the need to personally manage or fund the properties. However, REIT share prices can fluctuate and are highly responsive to shifts in interest rates.
The introduction of the REIT structure transformed real estate investing. Over time, REIT indices have adapted to reflect the sector’s evolution. With the growth and increasing significance of new segments, the broader REIT landscape has changed considerably, yet it continues to provide attractive income opportunities. The real estate market has become more diverse, with different segments offering distinct risk and return dynamics.
Also read: 11 Best REIT Stocks To Buy Under $10
It is frequently seen that many investors remain cautious about real estate and REITs, partly due to challenges faced by the retail and office subsectors. Additionally, the sector’s reliance on significant leverage makes it vulnerable to rising interest rates. However, recent performance trends have caught investors’ attention. Over the past three months ending November 2024, investors in the US have allocated around $4.5 billion to REIT and real estate-focused ETFs, surpassing investments in any other sector, according to a report by Bloomberg. This growing interest may be attributed to unique features of the REIT market and broader macroeconomic developments.
According to a report by Nareit, as the third quarter of 2024 begins, it signals nearly two years of disparity between REIT valuations and those of private real estate. Although the gap between the two is gradually narrowing, the prolonged adjustment period still presents a compelling opportunity for institutional investors to incorporate REITs into their real estate investment strategies. The report further highlighted the performance of REITs in recent years. Since 2022, REIT performance has generally moved inversely to changes in the 10-year Treasury yield. In the third quarter of 2024, REITs delivered strong total returns as the 10-year Treasury yield declined, leading to significant reductions in the REIT implied cap rate and narrowing the public-private cap rate spread. However, since the end of the third quarter, a notable rise in the 10-year Treasury yield has caused REIT total returns to decline, likely widening the cap rate spread again.
If this inverse relationship continues, interest rates will remain a key factor in the valuation adjustment process. Narrowing the public-private cap rate gap is crucial for reigniting property transactions and offers real estate investors an opportunity, as it could drive REIT outperformance into 2025. If REITs sustain their momentum and private property investors maintain their gradual increases in appraisal cap rates, the commercial real estate market may finally resolve its valuation disparity between public and private assets.
REITs are an attractive option for income-focused investors. By law, they must distribute at least 90% of their taxable income to shareholders as dividends. Unlike many other companies, REITs typically do not retain earnings, which often results in higher yields compared to other equity investments. According to Tower Financial Group of Wells Fargo Advisors, in 2023, equity REITs offered an average yield of 3.9%, significantly outpacing the 1.4% average yield of stocks in the broader market. In view of this, we will take a look at some of the best dividend stocks in the REIT sector.
Photo by Blake Wheeler on Unsplash
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked REIT companies that pay regular dividends to shareholders. Next, we narrowed down 12 companies that are popular among elite funds at the end of Q4 and ranked them in ascending order of the number of funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
12. Universal Health Realty Income Trust (NYSE:UHT)
Number of Hedge Fund Holders: 12
Universal Health Realty Income Trust (NYSE:UHT) is an American real estate investment trust company that mainly invests in healthcare and human service-related facilities. The company holds investments or commitments across 76 properties spread across 21 states. It reported strong earnings in the third quarter of 2024, with revenues coming in at $24.5 million, up slightly from $24.2 million in the same period last year. The company’s net income for the quarter was nearly $4 million, up from $3.8 million in the prior year period.
Universal Health Realty Income Trust (NYSE:UHT) is down by over 7% since the start of 2024 due to high interest rates. This was also highlighted by Artisan Partners in its Q1 2024 investor letter. Here is what the firm has to say:
“Our bottom contributors were Cable One, Philips and Universal Health Realty Income Trust (NYSE:UHT). Universal Realty Income Trust (UHT) is a health care REIT (real estate investment trust) specializing in health care facilities, including acute care hospitals, behavioral health centers and medical office buildings. Our initial purchase was in June 2023. Like other high income producing stocks, UHT has been out of favor given higher interest rates. Besides the stock selling at low levels relative to its historical valuation and other REITs, we liked UHT’s track record of execution, low leverage, reduced cyclicality and consistent annual dividend growth. It currently yields nearly 8%. Recent results have been strong, with revenue growth up over 5% driven by annual lease price escalators, a better mix of assets, increased occupancy and M&A. However, UHT was down in Q1 along with the broader real estate sector as interest-rate sensitive areas badly lagged the rest of the market.”
Universal Health Realty Income Trust (NYSE:UHT)’s dividend remained unaffected despite reporting negative returns due to macroeconomic conditions. On November 25, the company declared a 0.7% hike in its quarterly dividend to $0.735 per share. This marked the company’s 41st consecutive year of dividend growth, which makes UHT one of the best dividend stocks in the real estate sector. The stock has a dividend yield of 7.21%, as of December 12. In the most recent quarter, the company also returned over $10 million to shareholders through dividends.
At the end of Q3 2024, 12 hedge funds tracked by Insider Monkey reported having stakes in Universal Health Realty Income Trust (NYSE:UHT), the same as in the previous quarter. The collective value of these stakes is nearly $23.6 million. Among these hedge funds, Renaissance Technologies was the company’s leading stakeholder in Q3.
11. Innovative Industrial Properties, Inc. (NYSE:IIPR)
Number of Hedge Fund Holders: 13
Innovative Industrial Properties, Inc. (NYSE:IIPR) is a California-based company that facilitates the expansion of the legal medical cannabis industry by providing investors with a real estate-focused way to gain exposure to the cannabis market. The company acquires regulated cannabis facilities from licensed operators nationwide and then leases them back through long-term triple net lease agreements. Currently, it owns 108 properties across 19 states. The REIT focuses exclusively on the medical cannabis sector, which is more extensively legalized and regulated than the recreational market. Its operational model achieves several objectives. Since the start of 2024, the stock has surged by over 2.4%.
Innovative Industrial Properties, Inc. (NYSE:IIPR) reported mixed earnings in the third quarter of 2024. The company posted revenue of $76.5 million, which fell by 2% from the same period last year. The revenue also beat analysts’ estimates by $877,000. The company reported adjusted funds from operations (AFFO) of $64.3 million and normalized funds from operations (Normalized FFO) of $57.8 million.
Innovative Industrial Properties, Inc. (NYSE:IIPR)’s cash position also remained strong. It ended the quarter with over $147 million available in cash and cash equivalents, up from $140 million in the prior-year period. Its total assets amounted to $2.4 billion. The company currently pays a quarterly dividend of $1.90 per share and has an attractive dividend yield of 7.32%, as of December 12. It is one of the best dividend stocks on our list as the company has been growing its payouts for eight consecutive years.
As of the close of Q3 2024, 13 hedge funds in Insider Monkey’s database held stakes in Innovative Industrial Properties, Inc. (NYSE:IIPR), which remained unchanged from the previous quarter. The total value of these stakes is more than $102 million.
10. Arbor Realty Trust, Inc. (NYSE:ABR)
Number of Hedge Fund Holders: 16
Arbor Realty Trust, Inc. (NYSE:ABR) ranks tenth on our list of the best dividend stocks. The American real estate investment trust company invests in a diversified portfolio of finance assets in the multifamily and commercial real estate markets. In the third quarter of 2024, the company reported revenue of $88.8 million, which was a 17.2% decline compared to the same period last year. Despite this, the revenue exceeded analysts’ expectations by $3.10 million. At the end of the quarter, the company had around $600 million in cash and liquidity. Its cash position remains solid, with trailing twelve-month operating cash flow totaling $492 million.
Arbor Realty Trust, Inc. (NYSE:ABR) is down by nearly 5% YTD. Earlier this year, the company faced difficulties when federal prosecutors and the FBI initiated an investigation into its commercial mortgage REIT. The investigation focused on the company’s lending practices and the accuracy of its statements regarding the performance of its loan portfolio. In response, the company assured that its commitment to cooperating with the regulatory investigation and expressed confidence in its adherence to proper standards.
Arbor Realty Trust, Inc. (NYSE:ABR)’s reassurance helped restore investor confidence. The company is a well-established industry player, operating since 2003. Throughout its history, it has successfully navigated major economic challenges, including the Great Financial Crisis, the 2020 pandemic, and the post-inflation surge along with Federal Reserve rate hikes in 2023. Currently, it offers a quarterly dividend of $0.43 per share and has a dividend yield of 12.04%. The company has been rewarding shareholders with growing dividends for the past 11 years.
The number of hedge funds tracked by Insider Monkey owning stakes in Arbor Realty Trust, Inc. (NYSE:ABR) grew to 16 in Q3 2024, from 12 in the previous quarter. The consolidated value of these stakes is more than $68.2 million. With over 2.4 million shares, Omega Advisors was the company’s leading stakeholder in Q3.