Real estate investment trusts (REITs) finished 2021 as the top-performing sector generating a total return (appreciation and dividends) of 46.2%. Market participants that stayed in the best REITs are also well positioned to benefit from what this class might accomplish in 2022.
REITs are popular with investors because of the strength of their dividends, since they must payout at least 90% of their taxable profits as dividends, making them ideal as a passive investment option.
Growth drivers for REITs in 2022 include strengthening the U.S. economy and rising inflation. More frequent rent hikes and the increased price of real estate will stand to benefit REITs. The following three represent strong buys and are worth keeping an eye on.
W.P. Carey (NYSE: WPC)
One of the largest owners of net lease assets in the world, the company specializes in commercial properties in the EU and U.S. Carey enjoys a 98.4% occupancy rate and average 10.6-year lease terms.
Dividends have been increasing for 24 years in a row roughly paying up 75% of cash flow with significant debt maturities coming in 2024. Shares of the company are priced at 15 times expectations and the dividend sits at 5% one of the highest in the sector.
The stock has had a rough start to the year but has since recovered, trading well above all daily Simple Moving Averages. Furthermore, volume has been on the higher side as investors seem to be pilling into the stock.
Analysts give this REIT a strong buy rating, predicting that the average next 12-months price will be $88.75 or 5.98% higher than the current trading price of $83.74.
Prologis (NYSE: PLD)
Prologis hit the ground running, ending 2021 with a 17.9% year-over-year (YoY) increase in earnings per share. Funds from operations for 2022 are predicted to grow at 7.7% at the midpoint.
The company focuses on logistics and warehouse properties, leasing modern distribution facilities to a diverse base of 5,200 customers. The dividend yield is a bit more modest than other competitors at 1.94% however it should be secure with the company growing its earnings.
The stock recently created a double top so potential investors should keep an eye on the stock movement in the following days. This chart pattern usually signals a bearish pattern; however, if the stock continues to rise it could be an “improper” double top.
On Wall Street, the stock earned a clear strong buy rating, with the average price target for the next 12 months at $175.46 which is only 7.56% higher than the current trading price of $163.12. More bullish analysts see the stock reaching $209 levels.
Plymouth Industrial Reit Inc. (NYSE: PLYM)
Properties located along the main logistics corridors of the U.S. are the mainstay of Plymouth REIT. In the last five years, the company invested $900 million in real estate purchases. In the most recent earnings report, Plymouth reported that the rental rates have increased 16.7% compared to the same period last year.
Additionally, 38 industrial buildings have been acquired with an average yield of 6.2% from the new real estate. During the Pandemic the dividend had to be cut from 37.5 cents down to 20 cents, nevertheless, a hike of 5% occurred in 2021 with potentially more to come in 2022.
The shares have been trending downward since the beginning of the year, and are currently below all SMA’s. A bounce off of the $25 resistance line could see the share regain some of the lost ground, yet, investors would be well advised to keep an eye for a good entry position.
Analysts give the stocks a clear strong buy rating predicting that the average price in the next 12-months will reach $30.71 which is 20.43% higher than the current trading price of $25.50.
Disruption of patterns
Covid lockdowns were not kind to the REIT sector with those focused on office space suffering the most. Prices of shares have clawed back some, especially for warehouse and industrial REITS which are set to profit even more with the rise of inflation.
Investors looking for passive income for 2022 should keep an eye on these REITS as the payout should be fairly consistent, and if price appreciation occurs an opportunity to double returns would be more than welcome in these difficult times.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.