The Best REITs to Buy Now (or Hold)

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last updated 21 August 2023

The past year has been a tough one for real estate investment trusts (REITs), but notable declines now could set the stage for some of the best REITs to rally down the road.

Macro-conditions will remain challenging in the near term due to high interest rates, inflation and recession fears. "We expect a slowdown in the third and fourth quarters," writes Kiplinger economist David Payne in his gross domestic product (GDP) outlook. "But a recession may be avoided, with the odds of one in early 2024 at 40%."

And while REITs are not immune from macro-economic headwinds, "our review of REIT balance sheets and debt suggests that REITs are well-positioned to navigate the ongoing high interest rate environment because of their strong balance sheets," says REIT investment research firm Nareit in its mid-year report.

Why should I buy REIT stocks?

For investors, REIT stocks are known for their generous yields, with many considered among the best dividend stocks. This is because, by law, real estate investment trusts are required to distribute at least 90% of their net income to shareholders.

Additionally, the best REITs are often seen as a hedge against inflation because many have embedded escalators in their leases that cause rents to rise annually. And many firms will link rent increases with the Consumer Price Index (CPI), making REITs ideal investments during times of higher inflation.

With that in mind, here are nine of the best REITs to buy now. In order to find our list of the best stocks to buy in the REIT universe, we drilled down on those that have strong defensive characteristics and exceptional pricing power, including the ability to raise rent based on inflation. We also include those that are well-prepared for high interest rates thanks to their effective cost controls and balance sheet management.

Topics

S&P 500

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The best REITs to buy

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Company/ticker	Share price	Market value	Dividend yield
Sun Communities (SUI)	$120.96	$15.1 billion	3.1%
Prologis (PLD)	$121.47	$112.2 billion	2.9%
Public Storage (PSA)	$273.44	$48.1 billion	4.4%
American Tower (AMT)	$176.45	$82.3 billion	3.6%
Alexandria Real Estate Equities (ARE)	$115.10	$19.6 billion	4.3%
Essex Property Trust (ESS)	$236.31	$15.2 billion	3.9%
STAG Industrial (STAG)	$35.09	$6.3 billion	4.2%
National Retail Properties (NNN)	$38.70	$7.1 billion	5.8%
W.P. Carey (WPC)	$63.93	$13.7 billion	6.7%

Data is as of Aug. 18, and is courtesy of YCharts. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

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Sun Communities

Sun Communities (SUI) is America's leading owner/operator of manufactured housing, recreational vehicle (RV) parks and marinas. SUI is on this list of the best REITs to buy because it benefits from compelling supply-demand fundamentals for manufactured housing. Over the past decade, SUI has averaged 9% core FFO per share growth annually, significantly outperforming the major REIT and broad-market indexes. Dividend growth has averaged 5.6% annually over five years and the payout is exceptionally conservative for a REIT at 52% of FFO.

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3/10

Prologis

Prologis (PLD, $119.76) owns logistics real estate across the U.S., Europe and Asia; roughly 2.8% of global GDP flows through its distribution centers. Its customers are major logistics players like United Parcel Service (UPS) and DHL and e-commerce merchants like Amazon.com (AMZN) and Walmart (WMT). PLD is one of the best REITs to buy given its exceptional track record for creating value for investors. Prologis has hiked dividends 12.5% annually over five years and keeps payout low at around 62% of FFO. This points to an exceptionally secure and rising dividend.

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Public Storage

Self-storage are some of the most recession-proof stocks among REITs. Public Storage (PSA) is the market leader in self-storage. The REIT has top market shares in 14 of the 15 largest U.S. markets and more than twice as many locations as its next largest competitor. PSA has been aggressively building its franchise, including its recently announced acquisition of Simply Self Storage. Profits have not taken a backseat to growth. PSA has achieved steady expansion in operating margins, which have grown through digital initiatives and reduced payroll and utility costs. As such, the company has emerged as the profit leader in the self-storage industry.

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American Tower

Not only is cell tower REIT American Tower (AMT) one of the best inflation-proof investments, but the company is also one of the best REITs to buy for dividend growth. Specifically, AMT has increased dividends by roughly 20% on average, annually since 2012, and analysts forecast 13% annual growth through 2025. American Tower's dividend is also well covered, with FFO payout ranging around just 66%. "AMT is our top tower pick given its diversified global portfolio (international markets account for 45% of revenue) and faster growth," says BMO analyst Ari Klein, who has an Outperform (Buy) rating on the real estate stock.

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Alexandria Real Estate Equities

Alexandria Real Estate (ARE) is a life science REIT specializing in science, agricultural technology and technology office space located in key innovation centers across the country. We're not alone in our outlook that ARE is one of the best REITs to buy. Mizuho Securities analyst Vikram Malhotra recently reiterated a Buy rating on the stock, saying "while the near-term headline fundamentals will be challenging, we see a) an improving funding environment, and key catalysts, one of which is b) a precursor to real estate fundamentals inflecting." Alexandria Real Estate is certainly not the cheapest REIT out there, currently trading at 16.4 times forward adjusted FFO. Still, ARE's dividend payout from FFO looks ultra-safe at 55% and dividend growth is attractive at an average 6.2% annually over five years.

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7/10

Essex Property Trust

Shares of apartment REIT Essex Property Trust (ESS) have taken a major beating over the last 12 months, amid fears that massive tech layoffs will hurt the REIT's primarily California Coast and Seattle-centric portfolio. Still, Piper Sandler analyst Alexander Goldfarb (Overweight, the equivalent of Buy) believes "ESS' bull case into 2024 remains intact driven by lack of recession and substantial drop in supply in its biggest region." What's more, ESS is one of the best REITs for dividend growth, having delivered 29 consecutive years of increases. Over the past five years, Essex has grown its dividend by around 5% each year, on average, and payout is conservative at 62% of FFO.

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STAG Industrial

STAG Industrial (STAG) is a pure-play industrial warehouse REIT and a major beneficiary of e-commerce growth. While Amazon is STAG's single-largest tenant, accounting for 3% of annual rents, the portfolio is well-diversified both by geography, tenant and lease terms. In addition to being one of the best REITs to buy, STAG is also one of the best monthly dividend stocks and has hiked payouts every year since 2011. Dividend growth has been modest at just 0.7% annually over five years, but management has shared plans to grow future dividends in line with CAD (cash available for distribution). Boosting the dividend in line with CAD would suggest 4% annual increases in the future.

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National Retail Properties

Investors who have "stocks with reliably growing dividends" on their wish list should consider shares of National Retail Properties (NNN). The owner of single-tenant, net-leased retail properties has delivered 33 consecutive dividend increases. National Retail Properties manages a well-diversified, recession-resistant portfolio consisting of convenience stores (16.5% of the portfolio), automotive service locations (13.7%), and full and limited-service restaurants (18.0%) such as Taco Bell, Wendy's and Denny's. It's not only reliable dividends that make NNN one of the best REITs to buy and hold. National Retail Properties has generated respectable 4.3% annual gains in core FFO since 2016 and annual shareholder returns averaging 11.5% over 30 years.

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10/10

W.P. Carey

W.P. Carey (WPC) invests in single-tenant, net lease industrial, warehouse, office, retail and self-storage properties that have long-term net leases and built-in rent escalators. WPC's portfolio boasts a 99% occupancy rate and a weighted average remaining lease term of 11.2 years. Approximately half of the REIT's leases have contractual rent escalators linked to the CPI and another 40% of leases have fixed escalators. WPC is another of the best REITs to buy for reliable dividend growth. The company has increased its dividend every year since going public in 1998 and has maintained a stable payout since converting to a REIT in 2012. Plus, its dividend yield is the highest among all the REITs featured here.