5 Diversified REITs: Which To Buy Which To Avoid

Jul. 24, 2019 3:50 PM ETBPYU, EPR, ESRT, STOR, WPC9 Comments
Thomas Hughes profile picture
Thomas Hughes
1.98K Followers

Summary

  • The real estate sector is one of my top three target sectors this quarter.
  • Real estate-related stocks are OK, but don't pack the dividend punch of a good REIT.
  • I found attractive returns and outlook among the Healthcare REITs, now it's time to look at the diversified REITs.
  • There's less to choose from but good values are still to be had.
  • This idea was discussed in more depth with members of my private investing community, The Technical Investor . Start your free trial today »

The real estate sector is one of my three target sectors for dividend growth investors this quarter. The reason is simple, real estate, healthcare, and utilities have the best outlook for stable earnings growth through the end of next year. Other sectors may have a better outlook for 2020 EPS, but it's marred by negative growth this quarter and next. While the broad market struggles with earnings growth next quarter, the real estate sector is expecting EPS growth to accelerate.

In my quest to find the best investments within these sectors, I have looked at real estate-related companies and healthcare REITs. The real estate-related companies are OK, there is a positive outlook for growth among the group, but the dividends are pale compared to what you can find with a REIT. I found some attractive yields among the healthcare REITs and even so evidence dividend increases may be forthcoming later this year or next.

For this article, I am turning my attention to diversified REITs. Diversified REITs have some attraction because they offer a "diversified" approach to real estate investing. That said, diversified doesn't mean much when it comes to some of these companies so beware.

What this group has going for it include low valuation relative to S&P 500 stocks, a higher yield than the average S&P 500 stock, and economic trends. In terms of valuation, the S&P 500 is trading about 17X forward earnings while most diversified REITs are trading well below that level. Point of note, my valuation is based on FFO for the REITs, funds from operations, because the P/E ratios are often meaningless.

Empire State Realty Trust (ESRT)

The Empire State Realty Trust is a diversified REIT specializing in the greater NY metropolitan area. The company owns and operates 14 office properties and 700,000 sq ft

With explosive earnings growth becoming ever elusive in today's market I expect dividend growth stocks will outperform the broad market over the next few years. 

Are you positioned to profit from the capital gains and ever-increasing Yield on Investment provided by dividend growth stocks?

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This article was written by

Thomas Hughes profile picture
1.98K Followers
I am the son of an Army helicopter pilot, a former chef, and a longtime market watcher and trader.I developed my trading style and market strategies writing analysis and commentary for OptionInvestor.com. I wrote daily analysis there for nearly a decade before venturing out on my own. I now write the Technical Investor, a market research newsletter where I take a technical approach to fundamental trading.In the Technical Investor, I keep abreast of economic trends and earnings outlook and then apply them to the market and the charts. In so doing, I root out the best sectors and companies for investment from the earnings growth perspective. As a trader, my main focus is the S&P 500 but I follow the broader market as well, gold, oil, the dollar, and cryptocurrencies. When it comes to investing my goal is buying strong dividend-paying stocks with earnings and dividends growth potential at the right technical times. I've found that this combination usually leads to capital gains, market-beating dividends, dividend growth, and an increasing yield on investment over the long term.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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