For income investors, particularly those who are older and must prioritize income and capital preservation, real estate investment trusts (REITs) are a gold mine.
A landlord/tenant model is utilized by many of these businesses. The assets of REITs might include forests, office space, retail space, mobile tower capacity, and even retail space. These companies must pay little federal taxes in exchange for having to distribute the vast majority of their profits as dividends in order to be considered a REIT.
Here are two of the best REITs for income investors to consider.
1. Income stock American Tower has a fantastic long-term growth story.
Cellphone REIT American Tower (AMT 2.09%) is gaining from the rise in mobile data consumption. The business constructs cellular towers and rents space on them to mobile phone providers, cable providers, and governments.
As more people utilize video on their smartphones, there has been a surge in the demand for mobile data, which some estimates predict will more than double by the end of 2027. A large portion of this will be fueled by more people using 5G.
American Tower recently acquired data REIT CoreSite as part of its expansion into the data center industry. The cloud services and hosting that data center REITs typically provide for large data consumers complement American Tower’s core tower business.
Revenues at American Tower increased by 16% in the second quarter of 2022, and the business has a history of raising its quarterly dividends continuously since 2012. As a result, American Tower offers income investors the best of both worlds: a long-term growth story and gradually rising income. The dividend yield is now 2.3%.
2. With an emphasis on triple net leases, Realty Income is a very cautious income investment.
A REIT with a focus on single-tenant buildings with long-term leases is Realty Income (O 0.77%). These contracts often have extended terms and automatic rent increases. According to the leases, the tenant is responsible for paying the majority of the property’s expenses, such as taxes, upkeep, and insurance.
Contrary to the gross lease that most people are accustomed to, this sort of lease is known as a triple net lease. In a gross lease, the landlord bears all expenses outside the rent payment from the tenant. Given the length of these contracts, thorough tenant verification is essential. Almost half of Realty Income’s tenants have credit ratings that are considered investment-grade.
Realty Income hiked their monthly dividend three times in 2020, whereas the majority of REITs reduced their payments due to the pandemic. Drugstores, convenience stores, or dollar stores make up the majority of Realty Income tenants. These companies were allowed to continue operating because they were deemed necessary during the COVID-19 epidemic. While several of Realty Income’s tenants (particularly movie theaters and fitness facilities) were temporarily forced to close, Realty Income performed better than malls and outlets Reit.
A Dividend Aristocrat, Realty Income is a veteran with a 28-year track record of yearly dividend increases. One of the safest REITs available, the company ought to be a staple asset for an income investor. Its dividend yield at the moment is 4.4%.