Deep Dive

March Madness for REITs? Here’s a ‘final four’ for investors seeking dividend income.

Analysts at Jefferies expect these real-estate investment trusts to keep increasing payouts through 2025.

Fans of the NCAA Men’s Division I Basketball Tournament will find out which teams make the Final Four on March 26, but Jefferies has a recommended “final four” list of real-estate investment trusts right now.

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“Final four” is an eye-popping term, and will signal maximum excitement for fans of the NCAA Men’s Division 1 Basketball Tournament, when we see which teams win games among the “elite eight” on March 26.

But if you are an income-seeking investor who doesn’t want to risk dividend cuts during a long period of market turmoil that might be followed by a recession, a team of analysts at Jefferies led by Jonathan Petersen has already narrowed down a group of 76 publicly traded real-estate investment trusts to its own “final four.” These are companies with good records for increasing payouts that Petersen expects to continue doing so over the next three years.

A REIT is a company that owns property or invests in mortgage-backed securities and distributes at least 90% of its earnings to shareholders as dividends, in return for tax advantages. Most dividends received by investors are taxed as ordinary income.

There are two broad types of REITs. An equity REIT holds property and rents it out. A mortgage REIT either operates as a lender, or invests in mortgage-backed securities, or both.

Narrowing an “elite eight” of REITs to the “final four”

In a report on March 17, Peterson wrote that among 76 publicly traded U.S. REITs that have existed for at least 15 years, only 22 have been able to avoid cutting their dividends. He noted that “the list of stalwart dividend payers isn’t heavily weighted to one subsector,” and added that the key to selecting the best performers for the next 15 years “boils down to the quality and durability of its current dividend.”

For its “elite eight” REITs, Jefferies narrowed the list to companies with “solid dividend outlooks,” before narrowing further to its “final four” that it rates a “buy” and are on the firm’s “conviction list.”

Here are the Jefferies “elite eight” REIT stocks, with the “final four” bolded and topping the list. Each group is sorted by current dividend yield. The right-most column has Jefferies’ expected compound annual growth rates (CAGR) for dividend payouts from 2022 through 2025.

Company Ticker Concentration Dividend yield Expected three-year dividend CAGR
National Storage Affiliates Trust NSA, +3.46% Self-storage 5.25% 4.0%
LXP Industrial Trust LXP, +3.19% Warehouses and logistics 5.03% 7.4%
Healthpeak Properties Inc. PEAK, +3.00% Healthcare 5.61% 3.1%
VICI Properties Inc. VICI, +3.33% Leisure properties 4.93% 7.2%
Gaming and Leisure Properties Inc. GLPI, +2.04% Leisure properties 5.73% 2.4%
Acadia Realty Trust AKR, +3.43% Retail 5.28% 5.9%
Realty Income Corp. O, +2.99% Retail 4.90% 3.0%
Kimco Realty Corp. KIM, +2.86% Retail 5.01% 2.7%
Source: FactSet

Click on the tickers for more about each REIT. If you are interested in any individual stock, it is best to do your own research and form your own opinion about how successful a company is likely to be over the next decade at least.

Read?Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

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