Sunday, February 25, 2024
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Real Estate Riches: 3 REITs to Build Your Wealth in 2024

REITs could be excellent buys this year. If analyst forecasts are to be believed, then interest rates could be reduced soon, with some economists predicting it could happen as early as June this year. 

Falling interest rates are great news for REITs. Not only does it reduce the interest payments for the debts of these companies, but falling rates also decrease the price and demand for bonds. As bonds become less attractive, REITs move into the center stage as yield-hungry investors seek alternative options for income.

I believe that even very early-stage investors should consider owning at least some income-generating assets such as REITs, along with a diversified portfolio of dividend stocks. Starting or improving that portfolio in 2024 can be a good idea, as dividend growth continues to be a monster over long periods of time.

So if you’d like some ideas of what REITs to add to your portfolio, then read on. Here I’ve researched three lesser-known companies that could be a good addition to your portfolio.

Seritage Growth Properties (SRG)

Seritage Growth Properties (NYSE:SRG) focuses on redeveloping retail properties, especially those previously owned by Sears after it went bankrupt. 

SRG’s approach diverges dramatically from traditional REITs that simply manage existing properties. Instead, it transforms what it owns into mixed-use developments. This means the mixed-use aspect typically includes a combination of retail, office and residential spaces. 

The company’s approach is riskier than simply managing existing lots, but the capital appreciation potential is the corresponding upside. SRG offers investors a 7.38% yield for its preferred shares.

Wall Street also rates SRG stock a “Strong buy”.

Global Net Lease (GNL)

Global Net Lease (NYSE:GNL) specializes in acquiring and managing a diversified global portfolio of commercial properties with long-term net leases.

International exposure thru a U.S.-listed stock is an appealing option. The issue with buying ADRs and some OTC shares is that they are subject to withholding taxes for many countries. These extra taxes eat up much of an investor’s income, and can also cause some complications and headaches when it comes to filing and paying taxes. GNL’s inbuilt international diversification can therefore be seen as accretive for investors.

GNL’s dividend yield is also massive at 15.93% on a forward basis. However, this payout comes at a steep risk: namely, it’s distributing far more of its cash flow than it’s bringing in. Its dividend payout ratio is 139.33% at the time of writing.

The yield won’t be sustainable if the company keeps losing cash, but for those who understand the risks of investing in those ultra-high-yield REITs, then GNL may be worth considering.

Armada Hoffler Properties (AHH)

Armada Hoffler Properties (NYSE:AHH) is a vertically integrated, self-managed REIT that invests in mixed-used properties in the United States.

Just like with SRG, this business also develops, builds, and manages its portfolio of properties, which unlocks growth possibilities that are otherwise off-limits to other companies that solely focus on growing and maintaining their existing tenants.

AHH strikes a good balance between income, dividend growth, and the prospect of capital appreciation through its development efforts.

The REIT offers investors a dividend yield of 6.45% on a forward basis with a payout ratio of 62.88%, which is sustainable.

Another draw card for AHH is that it has a portfolio of residential, commercial and industrial properties. This gives it some intrinsic diversification, and can therefore be assumed to be less sensitive to changes in the business cycle.

Its debt is also high-quality, as it carries a BBB credit rating from the likes of Morningstar, which suggests it would also be resilient in the face of a market downturn.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the Publishing Guidelines.

Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.

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