3 of the best REITs to think about Investing for 2021

REITs or Real estate investment trusts can offer investors an opportunity to invest in real estate without having to actually own the property.

REITs are popular for income investors as they are required to distribute at least 90% of their earnings to shareholders. This can lead to high yields where 5% or more is not too uncommon. Yet there are only 3 REITs that are dividend aristocrats. Given they have to pay out so much of their earning, it can be difficult to grow their dividends each year over a sustained period of time.

Combined with a dividend reinvestment strategy , REITs can offer good Yield on Cost. But Yield should not be the main attraction for dividend investors. It is more important to see if the dividend is sustainable. If the corona virus has taught us anything, it is that the focus should be on quality companies with strong fundamentals.

Realty Income

Realty Income calls themselves the monthly dividend company and for good reason. They have paid 603 consecutive monthly dividends with 92 consecutive quarterly increases. This is a long and impressive record that has spanned across multiple recessions.

Realty Income focuses on high-quality real estate which is home to some high-profile tenants such as Walgreens and FedEx. Realty Income has over 6500 properties under long-term agreements with over 600 different tenants.

Occupancy rates have remained strong and in October 2020 they collected 92.9% of the rent. AFFO/sh grew 3.7% YTD while the dividend/sh grew 3.1%

Realty Income pride themselves on paying a dividend and they seem to have a conservative attitude to debt. Current yield is 4.43%. In terms of value, i would like to see realty income below $55 but int terms of a solid dividend growth REIT, this company is top of the pile for me.

STAG Industrial

Stag industrial poses an interesting position for investors as they benefit from the trends that are hurting other REIT’s. Retail is hurting at the moment due to the pandemic and the threat from eCommerce is huge.

STAG own industrial real estate such as distribution centres. This means that as the treat of eCommerce for other REITs continues they can profit from this shift. Amazon is undoubtedly the biggest player in the eCommerce world and they are currently STAGs largest tenant with over 2% of revenue.

Stag has over 450 building through the United States and their main focus is on single tenant properties. The main risk with single tenant properties is that they will always either be fully occupied or fully empty. As of the 5th November they have an occupancy rate of 96.3% and they collected 98.2% of third quarter rent.

They generated Core FFO of $70.7 million for the third quarter of 2020 compared to $60.6 million for the third quarter of 2019, an increase of 16.7%.

While I prefer companies that have paid dividends for a over 14 years it is encouraging that they have increased the dividend each year since their IPO in 2011. I also like the diversification they offer against the likes of Realty Income.

Digital Reality Trust

Digital Reality trust is one of a handful of data centre REITs . There is no doubt the world is changing and there is a huge amount of Data that needs to be processed and stored. With the growth in cloud computing and big data and the rise of artificial intelligence I expect a huge demand in data centers.

Digital Reality trust also have a decent presence in Europe and have recently acquired Interxion who provide carrier and cloud data centre services in all major European cities.

As of Q3 2020, they had an occupancy rate if 86% with 30% of the revenue coming from the EMEA region. Digital Reality Trust has been paying dividends since 2004 and currently has a yield of 3.18%.

Growth will come from Acquisitions and with a growing portfolio, FFO, and dividend. They should also benefit from the need for more and more data centers. Quality companies do not come cheap and they may not be hugely undervalued but as a solid growing dividend company, DLR look like a good bet for the near future.

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