Own real estate without the headache of owning real estate. That’s the big advantage of investing in real estate investment trusts (REITs). And REIT stocks come in many different flavors.
Real estate income (NYSE: O) And National Storage Affiliates Trust (NYSE: NSA) are great examples. The former owns several types of commercial properties, while the latter focuses exclusively on self-storage facilities. This is why I just bought these two high-yield REIT stocks.
1. Solid companies with good long-term prospects
I like to buy stocks and hold them for years. My main criteria for choosing stocks are the strength of their underlying businesses and how likely they are to do well over the long term. Both Realty Income and National Storage Affiliates (NSA) meet those criteria.
Realty Income is the seventh largest global REIT with a market capitalization of approximately $55 billion. The company has been in business for 55 years and has a solid A3 and A- (medium investment grade) credit rating of Moody’s And S&Prespectively.
The REIT’s diversification is a big plus. Realty Income owns 15,450 properties with clients in 90 industries. Top tenants include Dollar GeneraI, Walgreens, Dollar treeAnd Wynn ResortsHowever, no single customer represents more than 3.4% of the annual contractual rent.
Realty Income has good growth prospects in the U.S., including opportunities in retail, consumer-facing medical care and data centers. The big prize for the company, however, is Europe, which represents a total addressable market of $8.5 trillion.
NSA is much smaller than Realty Income, with a market cap of less than $4 billion. It owns 1,052 self-storage properties spread across 42 states and Puerto Rico. About 65% of NSA’s properties are in the Sunbelt, a region experiencing an influx of migration and strong employment and housing trends.
Self-storage is a particularly attractive niche in the real estate sector. Self-storage REITs have not only outperformed other REIT sectors over the past 30 years, but they have also been significantly less volatile.
I think NSA’s growth prospects are good in large part because of the fragmentation in the self-storage market. The top 50 operators claim only 32% of the total market, based on the number of facilities. NSA’s market share is only 2%.
2. A nice head start on strong total returns
Realty Income offers a forward dividend yield of 5.02%. The company has also increased its dividend for an impressive 29 consecutive years, with a compound annual growth rate of 4.3% since 1994.
NSA is not far behind, with a forward dividend yield of 4.75%. The REIT also has a solid track record of dividend increases, having raised its dividend for eight years in a row. Most notably, NSA has increased its dividend by a whopping 75% over the past five years.
I’m not yet relying on dividend income, although it could fund my retirement in the future. The main benefit of Realty Income and NSA’s great dividends, in my opinion, is that they give both stocks a nice leg up in delivering strong total returns.
3. A Fed-driven catalyst could be on the way
I invest for the long term, but I certainly don’t mind if the stocks I buy have positive short-term catalysts. Both Realty Income and NSA could have a Fed-driven catalyst coming.
The Federal Reserve looks set to cut interest rates later this month. With any luck, this will be the first of several rate cuts.
REIT stocks tend to respond well to lower interest rates for a couple of reasons. First, they rely on borrowing to buy additional properties. When rates fall, they can invest in expansion at a lower cost. Second, lower rates push down bond yields. Income investors may see REIT stocks as attractive alternatives to bonds when interest rates fall.
Again, this isn’t my primary reason for buying Realty Income and NSA stock. However, I do think there’s a good chance my investments will pay off sooner rather than later, thanks to the likelihood of the Fed cutting interest rates.
Should You Invest $1,000 In National Storage Affiliates Trust Now?
Before you buy shares in National Storage Affiliates Trust, you should consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and National Storage Affiliates Trust wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $716,375!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 9, 2024
Keith Speights has positions in Dollar General, National Storage Affiliates Trust, and Realty Income. The Motley Fool has positions in and recommends Moody’s, Realty Income, and S&P Global. The Motley Fool has a disclosure policy.
Why I Just Bought These 2 High Yield REIT Stocks was originally published by The Motley Fool
