3 Great REITs for Low Risk Investors

There is a compromise on Wall Street that every dividend investor must come to terms with: risk versus reward. When you see a giant return, it most likely means that there is also a huge risk involved in the investment. But that doesn’t mean you can’t find attractive, but not giant, returns from real estate investment trusts (REITs) that have been increasing their dividends for decades. Here are three of the best REITs for low-risk investors, and each has more than double the return of the S&P 500 Index.

1. The king

The undisputed king of the REIT dividend is Federal real estate (NYSE: FRT), with a whopping 54 consecutive annual dividend increases to its credit. This is the longest streak of all REITs. The current dividend yield is approximately 3.3%. Compared to the 1.3% return of the S&P 500 Index, that’s pretty generous, noting that despite the headwinds this pandemic-stricken retail owner experienced in 2020, he still managed to increase its dividend.

Image source: Getty Images.

The key is that Federal Realty focuses on quality rather than quantity when purchasing linear malls. Indeed, with only around 106 properties, it’s quite small, but the locations are so strong that even during the pandemic downturn, it was getting calls from retailers looking to upgrade from nearby locations. The REIT also puts a lot of effort into restructuring its assets to maximize the rents they generate and increase its bottom line.

This brings up the most exciting thing here: Federal Realty bought a handful of new properties during the downturn, giving it additional leverage for growth in the years to come. This includes adding a new region (Phoenix) to its Opportunity Set.

Federal Realty is never going to be a really exciting REIT, and the return will rarely be huge, but if a slow, steady dividend payment is your speed, you’ll want to keep an eye out for it.

2. Bigger and better

Real estate income (NYSE: O) is the next REIT here. The company owns single-tenant net leasehold properties, which means tenants are responsible for most of the costs of the properties they occupy. Spread over a large portfolio, this is a fairly low-risk way to invest in real estate.

This helps explain why Realty Income has increased its dividend every year for over 25 consecutive years, making it a dividend aristocrat. The dividend yield is 3.98%. And the dividend is paid monthly, making it easier to manage the budget for those looking to live off their dividends.

However, the most exciting thing right now is that Realty Income has just stepped up its game, using its acquisition of VEREIT to increase its portfolio from around 6,600 properties to over 10,000. In the net rental industry, the ladder offers a number of advantages.

For example, the investment grade REIT has access to cheap capital, the strength to close deals that its peers could not handle, the ability to spread its costs over more properties, and sufficient diversification of assets. its portfolio that no tenant or niche sector should be too problematic, even in a downturn.

On that note, the REIT increased its dividend four times in 2020. If you want to own the biggest and the best, Realty Income must be on your list.

FRT Dividend Yield Chart

FRT Dividend Yield given by YCharts.

3. The all-in-one

WP Carey (NYSE: WPC) is the last name on this list, with a generous 5.4% yield. While not a dividend king or a dividend aristocrat, he has increased his dividend every year since his initial public offering in 1998. And, like Realty Income, he has increased. payment quarterly in 2020.

The key here is that WP Carey, which is also a net lease REIT, has long been an opportunistic investor, investing money where it sees the best opportunities. This investment approach has led to a unique diversified portfolio, spread across industry, warehouse, office, retail and self-storage sectors, and across all geographies, with around 37% rents from outside the United States (mainly Europe).

This is probably one of the most diverse REITs you can buy, making it a kind of one stop shop for investors looking to own a single REIT. He doesn’t have the scale that Realty Income offers, but that hasn’t stopped him from hitting a pretty incredible dividend record. And given its generous return compared to Realty Income and the market in general, it looks relatively attractive today.

Those to own

Federal Realty and Realty Income tend to be offered premium prices by investors most of the time. That includes today, which means value-conscious investors are likely to find them less than attractive. However, if your goal is reliable income from a relatively low-risk investment, both are worth exploring.

Meanwhile, WP Carey was cheaper in the past, but still looks attractive enough, given its higher dividend yield than its peers and strong dividend history. Most income investors will likely find it attractive right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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