The Consumer Price Index (CPI) reached its highest level since December 1981 in March 2022, going as high as 8.5%. Along with the rising inflation, there is a war in Ukraine followed by disruption of supply chains and rising energy prices.
Amid all these uncertainties, it would probably make sense to invest in stocks with strong balance sheets and preferably own a lot of assets. Investments that could tick most if not all of these boxes are Real Estate Investment Trusts (REITs)
The great thing about investing in REITs is that the business model is straightforward. Usually, these businesses have the ability to generate good dividend yields and grow over time. Thus, Finbold researched and identified the top five REITs to invest in 2022.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
#1 Realty Income (NYSE: O)
For 53 years, the company has been accumulating properties and boasts over 11,288 properties with over 213 million square feet on its balance sheet. At the time of writing, the company is worth roughly $40 billion, making it one of the largest REITs on the market.
Over the past four years, the company experienced huge growth from $1.22 billion in 2017 to $2.08 billion in 2021. Similarly, the number of properties grew from 5,172 to 11,136 over this time period while keeping their lowest occupancy rate at 97.9%; a number impacted most by the Covid pandemic; otherwise, it would stand at 98.4%.
For the current year, earnings showed growth, almost doubling revenue and raising dividends for their shareholders for the 98th consecutive quarter, which they payout to shareholders each month. Meanwhile, shares have been recovering from their early May lows, trying to create stable trading between $66 and $68, slightly below all daily Simple Moving Averages (SMAs).
In short, analysts on Wall Street, deem the stock a moderate buy. For the next 12 months, they predict the average price will be $74.43, 8.75% higher than the current trading price of $68.44.
#2 Store Capital (NYSE: STOR)
Store Capital focuses on Single Tenant Operational Real Estate (STORE) across the U.S. and has a strong portfolio that has seen a strong rebound as the economy reopened post Pandemic. The company has over 2,800 locations scattered around the US, with no single tenant having more than 3% weight in their portfolio of assets which is well diversified.
Over the past ten years, the STOR investment portfolio grew from $1 billion to $10 billion at the end of 2021. To go along with this growth, the company’s Adjusted Funds From Operations (AFFO), dividend, and net income grew since 2015 by 5.5%, 6.2%, and 6.5% per year, respectively.
Even so, the shares have been in a downtrend, now trading below all daily SMAs. High volumes have been noted in May as the selling pressure keeps pushing the stock price down. If the price action pushes the stock below $25.29, November 2021 resistance line, more pain could then be expected.
On the other hand, analysts deem the shares a moderate buy predicting that in the next 12 months, the average price could reach $33.50. This is 26.18% above the current trading price of $26.55.
#3 Crown Castle International (NYSE: CCI)
Crown Castle is a telecommunication REIT that operates over 40,000 cell towers and more than 80,000 miles of fiber; thus, in essence, linking data, technology, and wireless services across the US. Investors looking to invest in the 5G niche could have the best of both worlds in this REIT. From 2018 to 2021, CCI had an annualized return of 14%, which consisted of 11% AFFO and a 3% dividend yield.
The growth of the company continued in Q1 2022, as per the earrings report, where revenues grew by 15% year-on-year (YoY) and AFFO by 9% YoY. In the previous five years, the CCI shares have returned 127%, of the total return while the S&P 500 returned ‘only’ 90%.
On steady volume, shares are recovering from the early May drop, which could have been a good buying opportunity for long-term investors. If shares break above the $199 level, they could test the $209 resistance seen at the end of 2021 and the beginning of 2022.
After all, analysts agree that the shares are a strong buy, with the average price for the next 12 months seen at $210. This would represent an increase of 9.60% from the current price of $191.61.
#4 Simon Property Group (NYSE: SPG)
Simon is a mall REIT which have fallen out of favor since the Pandemic hit malls and physical stores; however, the company has shown its resilience and ability to deliver despite the challenges. In the most recent quarter, the company increased its dividend by 3%, authorized a $2 billion stock buyback plan, and raised its annual guidance.
For the full year of 2021, the company increased its revenue by $500 million and cash flow to $1.3 billion, generating 25% AFFO growth and making up for what it lost during the covid shutdowns. However, the shares have been volatile in 2022 and could continue to be so as retailers have posted less than stellar earnings results recently. This could worry investors, which in turn could be reflected in the stock performance.
Currently, the shares are below all daily SMAs, and if the shares break below $104, more downside to the low $90 could be seen. Daily trading volumes are a bit lower than in the previous months which could indicate that the share price is trying to settle around the $100 level.
Consequently, analysts have a moderate buy on the shares. The average price prediction for the next 12 months states that the shares could be trading at $153.1, which is 42% higher than the current trading price of $107.85.
#5 Digital Realty Trust (NYSE: DLR)
Officially the business of Digital Realty is REITs but since it has a portfolio filled out with data centers it could also be dubbed a technology company. Revenue has doubled over the past five
5 years, going from $2.5 billion to $4.8 billion resulting in a 14% annual growth.
Allied Market Research indicates that the data center market will grow from $187 billion in 2020 to $517 billion in 2030, which could be good for the company.
On the whole, the company has been growing its dividend from 2011 to today by 70%. Shares of the company have been under pressure lately, losing 21% year-to-date (YTD) mainly because a hedge fund is trying to short the shares of the company.
In the most recent session, the shares broke above the 20-day SMA and are looking to build on the momentum; however, the volumes would possibly need to pick up to see a real recovery.
Meanwhile, on Wall Street, analysts give shares a moderate buy rating. For the next 12 months, they predict the average price will be $156.70, 14.69% higher than the current trading price of $136.63.
In general, REITs seem to be a solid opportunity to hide in the market during troubled times. As evidenced by the above five REITs, they tend to come in various shapes and sizes, so building around them could present the best opportunity for capital preservation and appreciation.