4 REIT stocks holding buys in September

Real estate investment trusts (REITs) buy lots of properties, rent them out, and share the rental income with their investors. US REITs must also pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate.

This simple business model typically makes REITs a sound investment for most income investors, but rising interest rates have hurt the sector for two reasons. First, higher rates have made it more expensive to purchase new properties. Second, REITs have lost their luster as income plays out as yields on risk-free CDs and Treasuries have risen above 5%.

But with interest rates poised to decline in the near future, savvy investors should head back to REITs before the yield-hungry bulls rush back. I think these four resilient REITs are worth buying right now: Real estate income (NYSE: O), Vici properties (NYSE: VICI), STAG Industrial (NYSE: STAG)and Digital Realty Trust (NYSE: DLR).

1. Real estate income

Realty Income is one of the largest REITs in the world. It owns 15,450 properties in the US, UK and Europe and leases them to more than 1,500 tenants in 90 industries. Its top tenants include recession-proof retailers such as Walmart, 7-Eleven, Walgreensand The dollar tree.

Some of its top tenants have struggled with store closures in recent years, but it has still maintained a high occupancy rate of more than 96 percent over the past three decades. It pays its dividend monthly and has increased its payout 126x since its IPO in 1994. It currently pays an attractive forward yield of 5% and its stock looks like a bargain at 16x adjusted funds from operations last year’s (AFFO) per share.

2. Vici Properties

Vici is a REIT that primarily owns casino and entertainment properties in the US and Canada. Its top tenants, which it locks tightly into multi-decade contracts, include Caesar’s entertainment, MGM Resorts, Penn Entertainmentand Century Casinos. It has also maintained an impressive 100% occupancy rate since its IPO in 2018.

Vici cut its dividend at the height of the pandemic in 2020 and 2021, but has increased its payout in the past two years. It pays a high forward yield of 4.9% on a quarterly basis, and its stock still looks cheap at 16 times trailing AFFO.

3. Industrial STAG

STAG Industrial is a REIT that owns 573 industrial properties in 41 states. Its top tenants include Amazon, FedExand XPOand ended 2023 with a high occupancy rate of 98.2%. Many of its properties are used as e-commerce fulfillment centers, and that foundation could make it a less macro-sensitive piece than brick-and-mortar retail or commercial REITs.

STAG pays a monthly dividend and has consistently increased its payout every year since its IPO in 2011. It currently pays a forward dividend yield of 3.7% and trades at just 18 times last year’s underlying FFO per share.

4. Digital Realty Trust

Digital Realty Trust is a REIT that leases data centers to over half of the Fortune 500 companies. Its top clients include tech giants such as IBM, Oracleand Meta platforms. It operates more than 300 data centers in 50 metropolitan areas worldwide, and the secular expansion of the cloud and artificial intelligence (AI) markets should continue to drive its long-term growth.

Digital Realty’s year-end occupancy rate fell from 84.7% in 2022 to 81.7% in 2023 as high rates and other headwinds curbed cloud market expansion. It trades at 23 times last year’s basic FFO per share, making it slightly more expensive than the other REITs on this list, and it pays a lower forward dividend yield of 3.3% on a quarterly basis . It also did not raise its dividend last year as its growth cooled.

But despite these challenges, Digital Realty could still be a good way to simultaneously take advantage of the recovery in the REIT sector and the expansion of the data center market.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Leo Sun has positions in Amazon, Meta Platforms, Realty Income and Vici Properties. The Motley Fool has positions in and recommends Amazon, Digital Realty Trust, FedEx, Meta Platforms, Oracle, Realty Income, Stag Industrial and Walmart. The Motley Fool recommends International Business Machines, Vici Properties and XPO. The Motley Fool has a disclosure policy.

4 REIT Stocks to Buy Loudly in September was originally published by The Motley Fool