3 REITs You Can Hold for the Next 5 Decades (2024)

I’ve said for years that dividend-happy real estate investment trusts (REITs) are the superior play for long-term wealth generation. And yet another set of data – this one spanning more than half a century – proves just how powerful the REIT space really is.

Let me show you the latest findings – and introduce you to a handful of stocks that should deliver market-beating returns for the next several decades.

A couple months ago, I highlighted a CEM Benchmarking study of asset-class returns going back to 1998 that showed publicly listed REITs trounced everything in retirement-focused accounts: large-cap stocks, small-cap stocks, bonds, private equity, hedge funds – you name it!

Here’s another piece of research that goes much further back – 55 years, to be precise – and tells an even more convincing story of REIT dominance. “Historical Returns of the Market Portfolio,” released by a trio of researchers in November 2017, studied asset classes worldwide from all the way back to 1960 through 2015 and found that REITs delivered nearly a full percentage point more in returns annually than global stocks.

Specifically, REITs delivers a compound annual return of 6.43% per year (adjusted for inflation), beating stocks (5.45%), non-government bonds (3.5%) and government bonds (3.06%). That outperformance occurred across various economic situations – inflation, recessions, bull and bear markets.

There’s no secret: Real estate delivers steady growth over time, not to mention the compounding power of stable and typically growing dividends.

But who will carry the torch for REITs over the next 55 years? It takes a special level of company to fit the bill.

These three REITs have what it takes.

American Tower

Dividend Yield: 2.0%

One key to finding a stock that will survive – and better still, thrive – over the long-term is buying into a business that likely won’t get disrupted overnight.

Enter American Tower.

American Tower is a telecommunications infrastructure REIT that boasts a global portfolio of 170,000 cellular towers – that it leases out to the likes of AT&T and Verizon – as well as outdoor antenna systems, managed rooftops and other solutions across 17 countries on five continents.

In short, then, American Tower is involved in what’s essentially a utility at this point (mobile communication), via a delivery method that’s showing no signs of evolving from the current tower structure. Indeed, the “next generation” – 5G, which will only begin to roll out in 2019 – will be distributed in much the same way as its predecessors.

Mobile communications are becoming the lifeblood of the world’s citizens. Not only is this now the primary way humans communicate, but it’s becoming the way we all learn, research, ingest news … and even shop. In fact, I recently extolled American Tower’s virtues as a “hidden” way to dredge dividends out of Amazon.com.

Those dividends aren’t exactly robust at current prices, mind you, but for all the right reasons. That is, American Tower has grown its dividend like a weed, at 172% over the past five years alone, but its soaring stock price weighs on the current listed yield. Longtime holders will continue to enjoy much better percentages as the years roll on.

Better still, AMT’s share price hasn’t yet come close to “growing into the dividend.”

AvalonBay Communities

Dividend Yield: 3.2%

Another market that isn’t going away is housing. Oh, housing will ebb and flow – 2007-08 was a stark reminder of that – but as long as there are humans, they’ll always need a roof over their head. And especially as space becomes increasingly limited, apartments will reign supreme.

That’s good news for the likes of AvalonBay Communities.

AvalonBay is one of the largest publicly traded residential REITs, representing 84,490 homes in 290 communities across 11 outstanding housing markets that span much the East Coast, Pacific Northwest and California. It does so via the Avalon, AVA and “eaves by Avalon” brands.

This isn’t a turbulence-free market by any means. Rent growth has been dipping from 5%-plus year-over-year in recent years to roughly 2%, though that number is finally stabilizing. AvalonBay has actually reduced its development starts volume from a $1.4 billion annual average from 2013-16 to a projected $900 million average across 2017-18.

Still, Avalon’s future looks bright, even in this uneasy short-term. The company revised its full-year 2018 outlook a few months ago, including 4.1% growth in funds from operations (FFO, an important metric of REIT profitability), up from 3.6% initially projected, 2.4% same-store rental revenue growth (up from 2.1%) and 2.3% net operating income growth (up from 2%).

This will never be a monster-growth business. But it should head broadly higher over time, helping keep up a dividend-payout streak that dates back to 1995.

First Industrial Realty Trust

Dividend Yield: 2.7%

Something else that isn’t going away tomorrow, next year or decades from now? Industry.

It is going to change. Industry has been in a long-term trend of automation for literally decades now, moving from man to man-assisted machine to fully self-reliant robots. If you want an example of what the future might look like, consider this CNBC profile of the world’s first humanless warehouse.

But one thing that hasn’t changed about the warehouse is that it takes up space. Thus, barring some bizarre change in the rules of physics, industrial landlords such as First Industrial Realty Trust will always be in demand.

First Industrial is a wide-ranging industrial REIT that leases out properties such as national and regional distribution centers (read: warehouses), light industrial buildings (for product assembly) and R&D facilities, and also deals in developable land. Also, like other industrial REITs, FR does more than just lease out – it offers property management services, and can even build to suit or redevelop existing properties to better serve an individual customer’s needs.

FR is a steady Eddie that keeps growing over time. Its most recent quarterly report was a gem, with cash rental rates up 9% year-over-year, fueling 6.8% growth in cash same-store NOI. Occupancy was 97.6%, up from 96.8% just a quarter ago – and up from 92.9% in 2013.

I recently pointed out that REITs such as Prologis are a play on the growth of e-commerce, and First Industrial is in the same ilk. Retailers are shifting away from brick-and-mortar space in malls and instead are selling more wares online. All of those goods have to come from somewhere, and that somewhere distribution centers – currently 84% of FR’s square footage.

Disclosure: none

3 REITs You Can Hold for the Next 5 Decades (2024)

FAQs

What is the best performing REIT over 10 years? ›

St Joe (JOE) has had the highest return between April 21, 2014 and April 21, 2024 by a US stock in the REIT Industry, returning 212.4%.

What are the top 5 largest REIT? ›

Largest Real-Estate-Investment-Trusts by market cap
#NameM. Cap
1Prologis 1PLD$96.97 B
2American Tower 2AMT$81.33 B
3Equinix 3EQIX$72.30 B
4Welltower 4WELL$54.92 B
57 more rows

What is the most profitable REITs to invest in? ›

Best-performing REIT mutual funds: April 2024
SymbolFund name1-year return
BRIUXBaron Real Estate Income R612.08%
JABIXJHanco*ck Real Estate Securities R611.07%
RRRRXDWS RREEF Real Estate Securities Instil9.26%
CSRIXCohen & Steers Instl Realty Shares9.84%
1 more row
Apr 11, 2024

Which REITs pay the highest dividend? ›

The market's highest-yielding REITs
Company (ticker symbol)SectorDividend yield
KKR Real Estate Finance Trust (KREF)Mortgage14.0%
Two Harbors Investment (TWO)Mortgage14.0%
Ares Commercial Real Estate (ACRE)Mortgage13.8%
Brandywine Realty Trust (BDN)Office13.6%
7 more rows
Feb 28, 2024

How long should I hold a REIT? ›

Is Five Years the Standard "Hold" Time for a Real Estate Investment? Real estate investment trusts (REITS) and other commercial property investment companies frequently target properties with a five-year outlook potential.

Why not to invest in REITs? ›

REITs are, however, sensitive to interest rates and may not be as tax-friendly as other investments. If a REIT is concentrated in a particular sector (e.g. hotels) and that sector is negatively impacted (e.g. by a pandemic), you can see amplified losses.

How many REITs should I own? ›

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

Which REITs have the highest return? ›

8 Best High-Yield REITs to Buy
REITForward dividend yield
Blackstone Mortgage Trust Inc. (BXMT)12.1%
KKR Real Estate Finance Trust Inc. (KREF)13.5%
Easterly Government Properties Inc. (DEA)8.3%
Realty Income Corp. (O)5.5%
4 more rows
Jan 24, 2024

Are REITs a good investment in 2024? ›

April 2, 2024, at 2:50 p.m. Real estate investment trusts, or REITs, are a great way to invest in the real estate sector while diversifying your options. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.

What is bad income for REITs? ›

For purposes of the REIT income tests, a non-qualified hedge will produce income that is included in the denominator, but not the numerator. This is generally referred to as “bad” REIT income because it reduces the fraction and makes it more difficult to meet the tests.

What is better than REITs? ›

Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.

How are REITs doing in 2024? ›

Only 9.55% of REITs had a positive total return in January. During January 2023, the average REIT had a strong +11.77% return, whereas REITs had a much rougher start to 2024 with a -5.72% total return.

Do REITs pay monthly? ›

For investors seeking a steady stream of monthly income, real estate investment trusts (REITs) that pay dividends on a monthly basis emerge as a compelling financial strategy. In this article, we unravel two REITs that pay monthly dividends and have yields up to 8%.

When should I invest in REITs? ›

Historically, REITs tend to deliver their highest returns during early stages of the real estate recovery cycle, according to research from Nareit, an association representing the REIT industry. That could spell a strong performance for REITs moving forward.

How is REIT income taxed? ›

The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec.

What is the 90% rule for REITs? ›

How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

What is the 80 20 rule for REITs? ›

In situations where all investors submit cash election forms, the dividend payout formula will result in all shareholders receiving their distribution as 20% cash and 80% stock, which means that the cash/stock dividend strategy functions analogously to a pro rata cash dividend coupled with a pro rata stock split.

What is the 75 75 90 rule for REITs? ›

Invest at least 75% of its total assets in real estate. Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate. Pay at least 90% of its taxable income in the form of shareholder dividends each year.

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