3 REITs To Add To Your Portfolio In Q3

Real estate investment trusts (REITs) are excellent ways for investors to add some real estate exposure to their portfolio without having to take on a multi-year mortgage and landlord responsibilities. At its core, an REIT is a company that owns and manages income producing real estate, and shares out the income generated as dividends to shareholders.

REITs tend to focus on a specific type of real estate, be it commercial offices or hospitals or shopping centers. Investors, by and large, are not buying shares and holding positions with a single goal of capital appreciation like they might with a tech stock, but for the larger than average dividend yield that REITs offer. By law, they are required to distribute at least 90% of their taxable income in the form of dividends which can often yield similar numbers to owning brick and mortar properties but without all the hassle.

Funds from operations (FFO) is the key metric to watch for in an REIT report as this dictates the cash flow that can be distributed to investors. As the coronavirus pandemic remains a serious issue, REITs that are focused on office buildings like Boston Properties (NYSE: BXP) may not be the healthiest option. But here are three REITs with solid yields and a promising outlook over the next few months.

Digital Realty Trust (NYSE: DLR)

It speaks volumes that Digital Realty’s share price was above its pre-COVID levels by the end of March. For context, Boston Properties, who we mentioned above, still needs a 70% move from Tuesday’s closing price to check that box. Digital Realty’s secret is that it’s a data center REIT and so naturally connected to the surge in demand for cloud services and products.

While its 2.95% isn’t the highest yield available out there, investors can be fairly confident in decent capital appreciation being part of the bargain. Their shares can boast of an annualized return of more than 20% since the start of 2016 and the company’s most recent earnings report confirmed the momentum. FFO beat expectations and overall revenue was up more 24% year on year so it’s clear that management is onto a good thing.

Crown Castle (NYSE: CCI)

Communications infrastructure is another industry that hardly blinked when the coronavirus pandemic arrived. Like its cousins in the datacenter industry, shares of Crown Castle have been able to actually print multiple all-time highs in recent months. The company owns more than 40,000 cell towers and nearly 100,000 miles of fiber so has been well-positioned for the increased demand for cloud services. Investors getting involved are buying a stock with an annualized return of 19% since 2016 and a 3% dividend yield to keep them happy in the meantime.

Their Q2 earnings at the end of July were broadly in line with expectations with management speaking confidently about the company’s ability to prosper from the coming 5G roll out. CEO Jay Brown said with the release, “as we look forward, I am excited about the opportunity we see for Crown Castle to deliver long-term value to our shareholders while delivering dividend per share growth of 7% to 8% per year.”

Brixmor Properties (NYSE: BRX)

Brixmor is the wildcard of this list. As an REIT that’s focused on grocery-anchored shopping centers, it’s riskier than most but still a little bit more protected from the coronavirus than REIT’s that manage retail-heavy / grocery-light shopping malls. Still, that didn’t stop its share price falling more than 65% through April but for investors still on the sidelines and open to taking on some risk, that’s what could make it attractive.

Shares have since bounced 70% from those lows and look to be consolidating as Wall Street has now had several months to digest the effects of COVID. You have to be thinking that most of the worst-case scenario is already built into the share price and as the economic recovery continues and hopes of a vaccine grow, this is the comeback you want to be watching. And the best part about it, holding the stock will offer you a 9% dividend yield which you sit back and wait.