Buying the best REITs can be a powerful way to diversify your portfolio as well as bring in a stable income stream. Unlike some types of stocks, the price of real estate generally rises along with inflation. Thus, these types of investment vehicles may be better hedges against inflation than other types of investments.
But when it comes to determining the best REITs, there are several factors to consider. Not all are created equal, and some REITs are indeed struggling despite the favorable backdrop. Most investors who buy REITs favor income over capital gains. Therefore, just like with other types of dividend stocks, free cash flow is king. The trust must also have other things going for it to enable high total return.
So if you are after the best REITs then keep reading. Here are some of the best choices for September.
Realty Income Corp. (O)
Realty Income Corp. (NYSE:O) has a reputation for consistent dividend payouts, having done so for more than 50 years. Its diversified portfolio of retail and commercial properties has traditionally ensured steady rental income, even in economic downturns.
With a robust 99% occupancy rate at the end of Q2 2023, the firm has shown its ability to renew leases at higher rates. A concern is its increased debt, which stood at $19.6 billion, but Realty Incomes’ strong cash flow, backed by high occupancy and rising rentals, has led to continuous dividend growth. This helps make it one of those best REITs to buy in September.
When looking at the firm’s technical aspects, things are a mixed picture. It trades below its long-term moving averages, but then this may be a blessing in disguise. Isn’t it wiser to buy stocks when they’re cheap instead of the other way around? Also, there’s some evidence shown by its moving average convergence divergence and relative strength index that momentum is returning to the upside, suggesting it may be wise to invest in the short as well as long-term timeframes.
Digital Realty Trust (DLR)
Digital Realty Trust (NYSE:DLR) stands as a leading global provider of data center REITs. With the growth of the internet, AI, cloud computing and other data-intensive technologies, it’s anticipated that demand for data centers will continue.
What makes DLR stock one of those best REITs is its short and long-term financial results. In the second quarter this year, it reported a net income of $0.37 per share, up from $0.19 in Q2 2022. While funds from operations (FFO) per share was $1.52, slightly down from $1.55 in Q2 2022, revenues reached $1.4 billion, marking a 20% year-on-year increase. The company’s net income stood at $116 million and Adjusted EBITDA was at $697 million.
In terms of analyst opinions, it’s a bit of a mixed bag. Truist Financial lowered its target price from $175.00 to $130.00 but maintained a “buy” rating. In contrast, Jefferies Financial Group raised its target to $144.00, while StockNews.com gave DLR a “sell” rating. at the time of writing, the average analyst rating is “Hold” with a target of $120.93.
The consensus of these analysts is that there’s upside potential in store for DLR in the short term, while its tailwinds in the data center space may yield future returns.
Prologis (NYSE:PLD) is a titan in the industrial real estate sector, primarily focusing on logistics properties. As the e-commerce industry continues to expand, the demand for distribution centers and warehouses near urban centers has surged.
Despite the challenges posed by interest rates, the company maintains a solid balance sheet and has witnessed FFO/share growth. With properties in 19 countries and strong tenant retention, Prologis is further diversifying into solar energy and EV charging.
It’s good to not just invest in REITs but also invest in a diversified basket of REITs. PLD stock may tick these boxes if one is invested in other more popular REITs such as residential property or commercial buildings. This then gives it an advantage over other choices on this list, as industrial picks can be hard to come by. It’s a reason it’s one of those best REITs to buy.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.