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REIT stocks have faced volatility in recent months due to higher interest rates and headwinds in the broader real estate market. There is also a common misconception that REITs underperform when interest rates are high. An analysis by S&P Global shows otherwise. The firm’s report said that in four of the six high-interest-rate periods from 1976 through 2006, REITs posted positive total returns and outperformed the S&P 500 in half of those periods. Raymond Mathis, REIT equity analyst at Standard & Poor’s, was also quoted as saying that REITs have outperformed the broader market for the past three years, posting positive total returns every year during that period. High dividends and easy access to the lucrative real estate market have always attracted long-term investors to REITs.
Since investors flock to REIT stocks primarily for their juicy dividends, we decided to investigate some high-yielding dividend REIT stocks that are trading for a bargain today and have long-term growth catalysts. We favored REITs with a dividend yield of over 6% and a low forward price-to-earnings ratio (compared to the REIT industry median of 43).
Apple Hospitality REIT
Hotels REIT Apple Hospitality REIT Inc (NYSE:APLE) from Virginia is a monthly dividend stock with a dividend yield of over 6%. Last month, the company reported first-quarter earnings that met Wall Street estimates. FFO in the period came in at $0.34, while revenue rose 5.8% year-over-year to $329.51 million, beating estimates by $2.16 million. However, the stock is down 13% year-to-date in 2024 amid headwinds in the hotel REIT industry as consumers cut back on spending amid high inflation. Apple Hospitality has more than 220 hotels in its portfolio and stands out in the industry for its strong liquidity and low debt. The company’s debt-to-EBITDA ratio of 3.55 is better than more than 80% of companies in the REIT industry. Apple Hospitality is also expanding its footprint through acquisitions. In the first quarter, the company acquired the AC Hotel by Marriott Washington DC Convention Center for about $116.8 million. The company also said it has two hotels up for grabs: Embassy Suites by Hilton (for about $79.3 million) and Motto by Hilton (for about $98.2 million). Analysts expect discretionary consumer spending to rebound in the coming months on expected Federal Reserve rate cuts, which would be good news for hotel REITs like Apple Hospitality. The stock’s forward P/E ratio of 15.50 is well below the REIT industry median forward P/E of 43.
Starwood property
Starwood Property Trust Inc. (NYSE:STWD) is a Connecticut-based REIT focused on commercial mortgage lending and equity investments. With a dividend yield of over 10% and a forward P/E of 8.8 as of June 28, Starwood is a remarkably undervalued high-yield dividend REIT stock. Starwood Property is well-positioned to offset real estate market volatility thanks to its diversified portfolio. Offices, a volatile segment of the industry, account for just 11% of its assets, while commercial and residential lending make up a large portion of the company’s business (69% of assets), along with infrastructure lending and servicing. The stock’s valuation has been depressed in part by Starwood Capital’s announcement that it will limit redemptions of its non-traded $10 billion Starwood Real Estate Income Trust real estate fund to prevent asset sales and preserve liquidity. Starwood Property’s bullish view is that the redemption limits of the non-traded REIT should not be a concern for investors in Starwood Property as it is a publicly traded REIT with strong liquidity.
In the first quarter, the company earned $191.6 million in distributable earnings, up 1% from the previous quarter. The distributable earnings per share for the quarter came in at $0.59, while the company is paying a dividend of $0.48 per share. This translates into a payout ratio of 81%, more than enough to cover the dividend.
Gaming and leisure facilities
Pennsylvania-based REIT Gaming and Leisure Properties Inc (NASDAQ:GLPI) focuses on casinos and gaming facilities. The stock has a dividend yield of 6.7% and a forward price-to-earnings ratio of 13.46 as of June 28. It is one of the most geographically diversified gaming REITs with 65 facilities in 20 states. The company is known for its strong lease contracts, with most of its current leases not up for renewal until 2030-2040. Last month, the company acquired the real estate assets of Silverado Franklin Hotel & Gaming Complex, Deadwood Mountain Grand Casino and Baldini’s Casino for a combined $105 million.
Gaming and Leisure Properties’ moat in the industry is wide and strong, given the high barrier to entry into the gaming market amid regulation. The company’s occupancy rate of 100% also exceeds the S&P 500 REIT’s historical median occupancy rate of 94.8%. Analysts believe that expected Federal Reserve rate cuts could boost gaming and casino activity in the U.S. due to increased disposable income, helping gaming REIT stocks like Gaming and Leisure Properties.
Looking for opportunities with higher returns?
The current high interest rate environment has created an incredible opportunity for income-seeking investors to earn huge returns, but not through dividend stocks… Certain real estate investments in the private market offer retail investors the opportunity to take advantage of these high-yield opportunities, and Benzinga has identified some of the most compelling options for you to consider.
For example, the Jeff Bezos-backed investment platform recently announced its Private credit fundwhich provides access to a pool of short-term loans backed by residential real estate with a target of 7% to 9% net annual yield paid monthly to investors. The best part? Unlike other private credit funds, This one has a minimum investment of only $100.
Don’t miss this opportunity to profit from high yield investing while rates are high. Check out Benzinga’s favorite high yield offerings.
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This article 3 Best Undervalued REIT Dividend Stocks Yielding Over 6% originally appeared on Benzinga.com
