My, Oh My, 9 Rich Retirement REIT Buys

Nov. 21, 2021 8:01 PM ETBXP, CTRE, DOC, HIW, KRC, LTC, OHI, STOR, VICI40 Comments


  • Inflation is the #1 concern of 31% of Americans right now, and it's not hard to guess why.
  • Inflation is soaring at the fastest rate in recorded history and between 6.2% and 15.2%, depending on what goods and services you are measuring.
  • The bond market expects inflation over the next five years to be 3.2%, 2X what it was in the 2010s.
  • Fortunately, income investors can benefit from the incredible inflation-beating power of reasonably priced REITs, which are the #1 performing sector even in stagflationary conditions.
  • Today KRC, HIW, VICI, STOR, OHI, BXP, LTC, CTRE, and DOC are reasonably valued REITs that yield 5.2% and analysts expect long-term dividend growth of 5.0%. That's more than 2X the long-term inflation rate the bond market expects for the next 30 years and could be just what you need to beat inflation today, retire rich tomorrow, and stay rich in retirement no matter what the economy, stock market, or inflation does over the next 75 years.
  • Looking for a helping hand in the market? Members of The Dividend Kings get exclusive ideas and guidance to navigate any climate. Learn More »

Happy Senior Couple on the Bow of a Sail Boat

Spotmatik/iStock via Getty Images

If you're like most Americans, inflation is a major concern right now.

Inflation rates are rising at the fastest rate in recorded history.

The current acceleration in inflation is something you'd expect to see once every 10,000 years. And the official 6.2% inflation rate might be understating things a bit.

For many things consumers buy, inflation is actually 15.2%.

Shipping remains a major bottleneck with a record 80 ships waiting off LA and Long Beach to unload their cargo. For context, normally the number is zero because ships radio their arrival times two weeks in advance.

The supply chain backlog is getting worse, not better, at least for now.

Some economists think that inflation will peak in early 2022 at 6% core and 8% reported CPI.

That would be the highest inflation rate in 40 years (October was the highest inflation rate in 31 years).

The bond market expects higher inflation to persist for the next few years, and even to remain above the Fed's 2% target for the next three decades.

Fortunately, if you own assets, such as stocks, you're keeping ahead of inflation, even if it's actually 15% right now.

But what about today? The market is up 33% in the last year and now 30% historically overvalued according to JPMorgan.

S&P 500 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Analysts expect the S&P 500 to deliver about 21% total returns over the next five years.

Year Upside Potential By End of That Year Consensus CAGR Return Potential By End of That Year Probability-Weighted Return (Annualized)

Inflation And Risk-Adjusted Expected Returns

2021 -24.86% -87.08% -65.31% -68.31%
2022 -17.08% -15.17% -11.38% -14.38%
2023 -8.00% -3.82% -2.87% -5.87%
2024 1.40% 0.44% 0.33% -2.67%
2025 11.60% 2.69% 2.02% -0.98%
2026 22.67% 4.06% 2.79% -0.29%

(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Adjusted for inflation, the risk-expected returns of the S&P 500 are negative for the next five years. This is a return-free risk.

Aristocrats are expected to deliver about 2.25% yield + 8.9% growth -3.66% valuation drag = 7.5% CAGR returns over the next five years = 2.5% CAGR inflation and risk-adjusted expected return.

But never fear, because something wonderful is always on sale, and today I want to point out a surprising sector that is historically the best way to fight inflation.

REITs: The Inflation Fighting Champion Sector

For a decade investors have believed that REITs are a bond alternative and thus rising rates and inflation are bad for this high-yield sector.

Actually, in the 1970s REITs were the best performing sector delivering 14% inflation-adjusted returns!

In the month with the highest inflation in 31 years, REITs are up 6%, the #1 investment strategy.

How can this be? Because REITs are able to raise rents to keep up with inflation, thus growing cash flows and dividends.

Or to put it more simply, when cash is falling in value at a historic rate, hard assets that produce steady and rising income are worth their weight in gold.

Actually, REITs are a much better inflation hedge than gold or silver this year.

But hold on a minute! If REITs are up 38% in the last year and 30% YTD, then aren't they also overvalued?

(Source: Dividend Kings Research Terminal)

In the DK research terminal, we have a company screener that can let you easily find the best companies for any need or goal. Here I've screened for just REITs.

(Source: Dividend Kings Research Terminal)

  • green = potentially good buy or better
  • blue = potentially reasonable buy
  • yellow = hold
  • red = potential trim/sell

The DK 500 Master List includes the world's highest quality companies including:

  • All dividend champions

  • All dividend aristocrats

  • All dividend kings

  • All global aristocrats (such as BTI, ENB, and NVS)

  • All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

  • 42 of the world's best growth stocks (on its way to 50)

There are 46 REITs on the list right now and nine of them are undervalued, making them potentially reasonable buys.

REIT Ticker Speculative Quality Score (Out Of 100) Safety Score (Out Of 100) S&P Credit Rating 30-Year Bankruptcy Risk Long-Term Risk Management Consensus Industry Percentile Long-Term Risk Management Consensus Industry Percentile
Kilroy Realty (KRC) 77% 78% BBB 7.50% 83% 83%
Highwoods Properties (HIW) 77% 81% BBB 7.50% 66% 66%
VICI Properties (VICI) x (junk bond credit rating) 68% 67% BB 17.00% 63% 63%
Omega Healthcare Investors (OHI) x (business stress) 57% 51% BBB- 11.00% 44% 44%
Boston Properties (BXP) 60% 59% BBB+ 5.00% 75% 75%
LTC Properties (LTC) x (business stress) 70% 69% NA 11.00% 75% 75%
CareTrust REIT (CTRE) x (junk bond credit rating) 60% 64% BB 17.00% 25% 25%
STORE Capital (STOR) 71% 77% BBB 7.50% 53% 53%
Physicians Realty Trust (DOC) 66% 69% BBB- 11.00% 40% 40%
Average 67.33% - above-average/blue-chip 68.33%- safe BBB- 10.50% 58.22% -average 58.22%

(Source: DK Research Terminal)

My personal favorite recommendations are KRC, HIW, VICI, and STOR due to their strong combinations of quality, safety, attractive yield, and relatively strong consensus growth forecasts.

Company Yield Discount To Fair Value FactSet Long-Term Consensus Growth Rate Consensus LT Total Return Potential
Kilroy Realty 3.0% 20.46% 7.6% 10.6%
Highwoods Properties 4.4% 8.02% 3.8% 8.2%
VICI Properties 5.0% 5.25% 6.3% 11.3%
Omega Healthcare Investors 9.4% 25.39% 0.9% 10.3%
Boston Properties 3.4% 23.76% 5.7% 9.1%
LTC Properties 6.7% 20.88% 3.4% 10.1%
CareTrust REIT 5.2% 12.99% 5.7% 10.9%
STORE Capital 4.6% 13.17% 5.4% 10.0%
Physicians Realty Trust 5.1% 5.08% 6.2% 11.3%
Average 5.19% 15.00% 5.00% 10.2%

(Source: DK Research Terminal)

These REITs offer 5.2% yield along with 5% long-term growth forecasts, and thus 10.2% CAGR long-term consensus return potential.

Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return

Long-Term Inflation And Risk-Adjusted Expected Returns

Safe Midstream 6.1% 6.2% 12.3% 8.6% 6.3%
9 Reasonable Priced REITs 5.2% 5.0% 10.2% 7.1% 4.8%
Safe Midstream + Growth 3.3% 8.5% 11.8% 8.3% 5.9%
REITs 3.0% 6.9% 9.9% 6.9% 4.6%
High-Yield 2.8% 11.2% 14.0% 9.8% 7.5%
Dividend Aristocrats 2.3% 8.9% 11.2% 7.9% 5.5%
Value 2.1% 11.9% 14.0% 9.8% 7.5%
60/40 Retirement Portfolio 1.9% 5.1% 7.0% 4.9% 2.6%
REITs + Growth 1.8% 8.9% 10.6% 7.4% 5.1%
High-Yield + Growth 1.7% 11.0% 12.7% 8.9% 6.5%
10-Year US Treasury 1.56% 0.0% 1.6% 1.6% -0.8%
S&P 500 1.4% 8.5% 9.9% 7.0% 4.6%
Nasdaq (Growth) 0.7% 10.9% 11.6% 8.1% 5.8%
Chinese Tech 0.3% 12.0% 12.3% 8.6% 6.3%

(Sources: Morningstar, FactSet Research, Ycharts)

These nine reasonably priced REITs are expected to slightly outperform the S&P 500 over the long term, just as they have since 1998.

Historical Returns Since 1998 (Annual Rebalancing)

The future doesn't repeat, but it often rhymes" - Mark Twain

Past performance is no guarantee of future results, but studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.

So let's take a look at how these nine reasonably priced, inflation-fighting REITs have performed over the last 21 years, a period of time in which 91% of returns were purely a result of fundamentals.

(Source: Portfolio Visualizer)

  • yield in 1998: 7.6% (value bear market during the tech bubble)
  • the yield on cost in 2021: 49.6%
  • income growth (including dividend reinvestment): 9.3%

Analysts expect 10.2% CAGR long-term returns from these reasonably priced REITs, which is exactly what they delivered over the last 21 years.

Their income growth, including dividend reinvestment, was 4.5X the 2.1% average inflation rate of the last 21 years.

And the 5% long-term dividend growth analysts expect is more than 2X the long-term inflation rate the bond market expects. Even the 3.2% medium-term inflation the bond market expects over the next five years is not high enough to overcome the solid growth prospects of these reasonably priced REITs.

Risk Profile: Why All These REITs Aren't Right For Everyone

Being 100% invested in a single sector is poor risk management because it can expose you to both very high volatility and even income declines if a sector is struck by a black swan event.

For example, in the early 2000s, Medicare reform created an industry apocalypse for skilled nursing facility REITs like OHI and LTC.

(Source: Portfolio Visualizer)

This resulted in significant income declines if this was your entire portfolio. Similarly, the Great Recession saw about 75% of REITs cut or suspend their dividends though these nine cut theirs a lot less than most.

What kind of volatility does a 100% REIT portfolio deliver over time?

(Source: Portfolio Visualizer)

What about the future? While no one has a crystal ball we can use 21 years of historical data to estimate an 80% probability of how these nine reasonably priced REITs might perform in future recessions and market downturns.

75 Year Monte Carlo Simulation: A Reasonable Way To Estimate Realistic Worst Case Scenarios

Let me be clear that the purpose of long-term Monte Carlo simulations is NOT to imply that it requires 75 years for an investment thesis to play out.

Rather this is a statistical way to estimate, based on the past 21 years, what can be realistically expected, with 80% confidence to occur in the future.

In the last 21 years, we've seen

  • inflation ranging from 1% to 6.2%
  • interest rates of 0.5% to 7%
  • three recessions
  • two of the worst economic disasters in over 75 years
  • three bear markets

Thus, unless you think the next 75 years are going to be even more dramatic than the last two decades, this is a reasonable estimate, based on 5,000 simulations, of what investors buying just these nine REITs can expect.

(Source: Portfolio Visualizer)

The good news is that inflation-adjusted real returns are 80% likely to be between 4% and 10.3%, turning a $100,000 portfolio into $1.9 million to $152 million over the next 75 years.

Retirees will be interested to know that most likely such a REIT portfolio could safely withdraw 6.6% in perpetuity without significant risk of ever running out of money.

For context, Morningstar estimates that a safe withdrawal rate for the standard 60/40 stock/bond portfolio is now 3.3%.

In other words, reasonably priced REITs can be a great way to significantly increase your income in retirement.

For example, while it's not advisable, let's say you started with $100,000 and only invested into these nine REITs.

Now assume you withdraw 6.6% annually. What kind of income could that generate?

(Source: Portfolio Visualizer)

After starting out withdrawing 2X the safe withdrawal amount of a 60/40, there is a very good chance that you'd be able to live off generous, stable, and inflation-adjusting income for the next 75 years.

There is even a 50% chance that your income would rise steadily, as much as 8X over the decades.

Bottom Line: Reasonably Priced REITs Can Help You Beat Inflation, Retire Rich, And Stay Rich In Retirement

I understand why so many investors, especially retirees are worried about inflation. It's been 31 years since we've seen inflation this high and economists believe that inflation will get worse before it gets better.

(Source: JPMorgan Asset Management)

And with inflation-adjusted bond yields expected to remain negative for years if not decades, the traditional 60/40 retirement portfolio likely needs adjusting.

Stocks returns for the next decade could prove painfully low, and bonds are likely to deliver negative real returns.

Fortunately, it's always a market of stocks, not a stock market. Today REITs, despite a massive 38% rally in the last year that crushed sky-high inflation (and the S&P), still offer reasonable options for income investors.

KRC, HIW, VICI, and STOR are my top recommendations right now for reasonably priced REITs. However, OHI, BXP, LTC, CTRE, and DOC are also potentially worth considering.

These nine reasonably priced REITs offer a very generous 5.2% yield that analysts expect to grow at a solidly long-term inflation-beating 5.0% over time.

And that might be just what you need to not just beat inflation today, but retire rich tomorrow, and stay rich in the coming years and decades.


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This article was written by

Dividend Sensei profile picture
Maximize your income with the world’s highest-quality dividend investments

Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).

I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Disclosure: I/we have a beneficial long position in the shares of BXP, VICI, KRC either through stock ownership, options, or other derivatives. 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.

Additional disclosure: Dividend Kings owns BXP, VICI, KRC, and LTC in our portfolios.

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