Best REITs to Buy for Stellar Returns in 2024

REIT	Sector	Dividend Yield	Performance (YTD)
Welltower Inc. (WELL)	Health Care	2.7%	+2.7%
Realty Income Corp. (O)	Retail	5.8%	+5.8%
Crown Castle Inc. (CCI)	Wireless Infrastructure	5.9%	N/A
Extra Space Storage Inc. (EXR)	Self-Storage	4.4%	N/A
AvalonBay Communities Inc. (AVB)	Residential	3.8%	N/A
Equity Residential Properties Trust (EQR)	Multifamily	4.3%	N/A
SBA Communications Corp. (SBAC)	Wireless Infrastructure	1.8%	N/A
Invitation Homes Inc. (INVH)	Single-Family Rental	3.2%	N/A
Ventas Inc. (VTR)	Diversified Health Care	4.2%	N/A

As investors seek reliable sources of passive income and portfolio diversification, Real Estate Investment Trusts (REITs) have emerged as an attractive option. REITs are companies that own and operate income-producing real estate properties, such as apartments, shopping centers, office buildings, and more. By investing in REITs, you can gain exposure to the real estate market without the hassles of direct property ownership.

One of the primary advantages of REIT investing is the potential for high dividend yields. REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them an excellent choice for income-oriented investors. Additionally, REITs offer portfolio diversification benefits, as real estate tends to have a low correlation with other asset classes like stocks and bonds.

It’s essential to carefully evaluate the different REIT sectors and identify the best opportunities for potential growth and income. In this article, we’ll explore the top 10 REITs to consider investing in for the upcoming year.

Key Takeaways

• REITs provide exposure to income-producing real estate without direct property ownership.
• Top REIT picks for 2024 span various sectors, including healthcare, retail, residential, industrial, and data centers.
• Factors like strong property fundamentals, attractive dividend yields, proven management, and growth potential drive REIT selection.
• Diversifying across multiple REIT types can mitigate risk and enhance portfolio performance.
• Conduct thorough research and consult a financial advisor to align REIT investments with your goals and risk tolerance.

Must Read: Risks Of Real Estate Investment Trusts (REITs)

What Makes a Great REIT Investment for 2024?

When evaluating REITs for potential investment, several key factors should be considered:

1. Strong Underlying Property Fundamentals: Look for REITs with high-quality properties in prime locations, strong occupancy rates, and the potential for rent growth. These factors can drive sustained cash flow and support dividend payments. For example, healthcare REITs with facilities located in areas with aging populations or residential REITs in high-demand urban centers may be well-positioned for growth.
2. Attractive and Sustainable Dividend Yields: While dividend yields are essential, it’s crucial to assess the sustainability of these payouts. Evaluate the REIT’s payout ratio, cash flow, and balance sheet strength to ensure dividends are well-covered. A REIT with a high dividend yield but weak financials may be a red flag, as it could be forced to cut or suspend its dividend in challenging times.
3. Healthy Balance Sheet and Financial Flexibility: REITs with manageable debt levels and access to capital markets are better positioned to weather economic downturns and pursue growth opportunities. A strong balance sheet provides financial flexibility to invest in property acquisitions, developments, or renovations, which can drive long-term value creation.
4. Proven Management Team and Corporate Strategy: A skilled management team with a track record of creating shareholder value and executing a well-defined strategy is paramount for long-term success. Look for REITs with experienced leadership, a clear vision for the company, and a disciplined approach to capital allocation and risk management.

With these factors in mind, let’s delve into the top REIT picks across various sectors for 2024.

Top Healthcare REITs Picks

The healthcare REIT sector is poised for growth, driven by the aging population and increasing demand for healthcare services. Here are two standout picks:

Welltower Inc. (WELL)

Welltower is a leading healthcare REIT that invests in senior housing, skilled nursing facilities, and medical office buildings. As of April 2024, the company has delivered a stellar 2.7% year-to-date return, including dividends. Welltower is well-positioned to benefit from the growing aging population, particularly the segment aged 80 and older, which is expected to nearly double in the next decade due to the baby boomer generation.

With a portfolio of well-located properties and a focus on high-quality operators, Welltower has established itself as a leader in the healthcare real estate sector. The company’s strategic partnerships with industry-leading healthcare providers and its commitment to innovation, such as exploring the integration of technology in senior living communities, position it for long-term success.

Ventas Inc. (VTR)

Ventas is a diversified healthcare REIT with a portfolio spanning senior housing communities, medical office buildings, and other healthcare properties. The company offers a compelling 4.2% dividend yield and provides exposure to various segments of the healthcare industry. Ventas’ diversification strategy and focus on high-growth markets make it an attractive long-term investment option.

Also See: How Do REITs Work? The Complete Guide to Understanding REIT Investing

One of Ventas’ strengths is its strategic acquisitions and capital recycling program, which involves selling non-core assets and reinvesting the proceeds into higher-growth opportunities. This approach allows the company to continuously optimize its portfolio and position itself in markets with favorable demographic trends and healthcare demand drivers.

Resilient Retail REITs to Consider

While the retail sector has faced challenges from e-commerce disruption, select retail REITs have proven their resilience and ability to adapt. Here are two top picks:

Realty Income Corp. (O)

Realty Income, often referred to as “The Monthly Dividend Company,” is a retail REIT that focuses on single-tenant properties. With a 5.8% dividend yield and monthly dividend payments, Realty Income offers a reliable stream of passive income. The company’s tenants are responsible for paying real estate taxes, maintenance, and building insurance, making it an attractive income source for investors.

Realty Income’s portfolio is well-diversified across various retail sectors, including convenience stores, drug stores, and dollar stores, which tend to be more resistant to economic downturns. The company’s disciplined acquisition strategy and long-term net lease agreements provide a stable and predictable cash flow, supporting its consistent dividend growth over the years.

Federal Realty (FRT)

Federal Realty is a retail REIT that specializes in high-quality shopping centers and mixed-use properties in prime locations. The company has a strong track record of adaptability, embracing omnichannel retail strategies and incorporating experiential elements into its properties. With a focus on affluent communities and a well-diversified tenant base, Federal Realty is poised for continued success in the evolving retail landscape.

Federal Realty’s properties are designed to create a sense of community and offer a curated mix of national and local retailers, restaurants, and entertainment options. This approach has proven successful in attracting and retaining tenants, as well as driving foot traffic and consumer engagement. The company’s commitment to sustainability and environmental stewardship further enhances its appeal to socially conscious investors.

Residential REIT Winners for 2024

The residential REIT sector, encompassing both multifamily and single-family rental properties, is expected to benefit from favorable demographic trends and housing demand. Here are three top picks:

AvalonBay Communities (AVB)

AvalonBay Communities is a leading residential REIT focused on developing and managing high-end apartment communities in some of the most desirable urban and suburban markets across the United States. With a 3.8% dividend yield and a strong track record of operational excellence, AvalonBay is well-positioned to capitalize on the growing demand for rental housing.

AvalonBay’s portfolio is concentrated in high-cost coastal markets, where homeownership remains out of reach for many individuals and families. The company’s focus on exceptional customer service, amenity-rich communities, and strategic acquisitions and developments in high-barrier-to-entry markets have contributed to its success.

Equity Residential (EQR)

Equity Residential is another prominent multifamily REIT, offering a 4.3% dividend yield. The company’s portfolio comprises high-quality apartment communities across major metropolitan areas, catering to the growing preference for urban living and the rentership trend among younger generations.

Equity Residential has a strong presence in some of the most supply-constrained markets, such as Boston, New York, and Los Angeles, where demand for rental housing continues to outpace supply. The company’s commitment to sustainability and energy efficiency initiatives, as well as its focus on providing exceptional resident experiences, have contributed to its competitive advantage.

Invitation Homes (INVH)

Invitation Homes is a unique residential REIT that focuses exclusively on single-family rental homes. With a 3.2% dividend yield, Invitation Homes provides exposure to the growing demand for rental housing, particularly in markets with high homeownership costs. The company’s strategic acquisitions and professional property management approach have solidified its position in this niche market.

Invitation Homes has benefited from the shift towards suburban living and the desire for more space, which accelerated during the COVID-19 pandemic. The company’s focus on acquiring and renovating homes in high-growth markets, combined with its efficient operating platform and economies of scale, has driven strong financial performance and cash flow generation.

Top Industrial and Data Center REITs

The industrial and data center REIT sectors are poised for growth, driven by the e-commerce boom and the increasing demand for data storage and processing. Here are three top picks:

Prologis (PLD)

• Prologis is a leading industrial REIT with a global footprint, owning and operating distribution facilities and logistics properties across 19 countries.
• The company is well-positioned to benefit from the continued growth of e-commerce and the need for efficient supply chain management.
• Prologis’ focus on strategic locations and modern facilities makes it a strong contender in the industrial REIT space.
• The company has a robust development pipeline and a proven track record of capitalizing on favorable market conditions.
• Prologis’ scale, diversification, and commitment to sustainable operations further enhance its competitive advantages.

Duke Realty (DRE)

• Duke Realty is another prominent industrial REIT with a portfolio of high-quality logistics properties across the United States.
• The company’s strategic acquisitions and development pipeline position it well to capitalize on the growing demand for distribution and fulfillment centers driven by the e-commerce trend.
• Duke Realty has a strong presence in key logistics markets, such as Southern California, Chicago, and Atlanta, where industrial real estate demand remains robust.
• The company’s focus on tenant relationships, operational excellence, and environmental sustainability initiatives contribute to its long-term success.
• Duke Realty’s conservative financial management and disciplined capital allocation strategy provide a solid foundation for future growth.

Digital Realty Trust (DLR)

• Digital Realty Trust is a specialized REIT that focuses on data center properties, a critical component of the digital economy.
• As the demand for data storage and processing continues to expand, fueled by trends like cloud computing, mobile connectivity, and the Internet of Things (IoT), Digital Realty Trust stands to benefit from the growing need for secure and reliable data center facilities.
• The company’s global footprint, with a presence in major markets across North America, Europe, Asia, and Australia, allows it to serve a diverse customer base and capitalize on growth opportunities worldwide.
• Digital Realty Trust’s cutting-edge infrastructure, commitment to sustainability, and strategic partnerships with leading technology companies position it as a leader in this rapidly evolving sector.
• The company’s focus on innovation, including the development of next-generation data center solutions, ensures it stays ahead of the curve in meeting the evolving needs of its customers.

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Additional Industrial and Data Center REIT Highlights:

• Rising demand for cold storage facilities driven by the growth of e-grocery and online food delivery services presents opportunities for specialized industrial REITs.
• Edge data centers, which process data closer to the source, are gaining traction as businesses seek to reduce latency and improve performance, creating opportunities for data center REITs.
• Supply chain disruptions and the need for reshoring or nearshoring manufacturing operations may drive demand for industrial real estate in strategic locations.
• The adoption of 5G technology and the proliferation of connected devices will further fuel the need for data center capacity and connectivity infrastructure.

The industrial and data center REIT sectors are well-positioned to benefit from long-term secular trends, making them attractive investment opportunities for investors seeking exposure to these dynamic and growing real estate segments.

Cell Tower REIT Picks Capitalizing on 5G

The rollout of 5G technology has created significant growth opportunities for cell tower REITs, as they own and operate the critical infrastructure required for this next-generation wireless network. Here are two top picks:

Crown Castle (CCI)

• Crown Castle is a leading cell tower REIT that owns and operates a vast network of cell towers, small cells, and fiber-optic networks across the United States.
• With a 5.9% dividend yield, Crown Castle offers attractive income potential while benefiting from the growing demand for data and connectivity driven by the 5G rollout.
• The company’s extensive portfolio of over 40,000 towers and approximately 115,000 small cell nodes positions it as a key player in the 5G infrastructure market.
• Crown Castle has established long-term relationships with major wireless carriers, securing stable and predictable revenue streams.
• The company’s commitment to innovation and investment in cutting-edge technologies, such as edge computing and advanced fiber-optic networks, positions it for continued growth as data consumption and network demands increase.

SBA Communications (SBAC)

• SBA Communications is another major player in the cell tower REIT space, owning and operating wireless communication infrastructure, including cell towers, across the Americas and South Africa.
• While its dividend yield is lower at 1.8%, SBA Communications presents strong growth potential as it capitalizes on the infrastructure needs of 5G networks.
• The company’s portfolio consists of over 35,000 communication sites, strategically located in prime markets and high-traffic areas.
• SBA Communications has demonstrated a successful track record of acquiring and integrating complementary assets, enhancing its market position and operational efficiency.
• The company’s focus on international expansion, particularly in emerging markets with growing wireless penetration, provides additional growth opportunities.

Additional Cell Tower REIT Considerations:

• The deployment of 5G technology is a multi-year process, with initial phases focused on densification and network upgrades, followed by broader coverage expansion. This extended timeline provides cell tower REITs with a long runway for growth.
• The increasing adoption of connected devices, the Internet of Things (IoT), and the growing demand for high-speed data services will continue to drive the need for robust wireless infrastructure.
• Cell tower REITs benefit from long-term lease agreements with wireless carriers, providing predictable and recurring revenue streams.
• As wireless carriers seek to optimize their capital expenditures, they may increasingly rely on leasing tower infrastructure from REITs, presenting additional growth opportunities for the sector.

The cell tower REIT sector is well-positioned to capitalize on the global transition to 5G technology and the ever-increasing demand for wireless connectivity, making these REITs attractive investments for those seeking exposure to this high-growth segment of the real estate market.

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Other REIT Types – Office, Hotels, etc.

While the residential, industrial, data center and cell tower REIT sectors are expected to perform well in 2024, it’s worth mentioning other REIT types that may present opportunities or challenges:

• Office REITs: The office sector has faced headwinds due to the rise of remote work and hybrid work models. However, select office REITs with well-located properties and the ability to adapt to changing workspace demands may still be attractive investments. For example, REITs focused on flexible office spaces or properties in prime urban locations could benefit from the shift towards hybrid work arrangements.
• Hotel REITs: The hotel REIT sector was significantly impacted by the COVID-19 pandemic, but it has been recovering as travel and leisure demand increases. However, this sector may face challenges if economic conditions deteriorate or if business travel doesn’t fully rebound. Investors should carefully evaluate the portfolio quality, locations, and management strategies of hotel REITs before investing.
• Specialty REITs: Certain niche REIT sectors, such as self-storage, student housing, or gaming REITs, may present unique investment opportunities. However, these specialized REITs often carry specific risks and cyclical exposures that require thorough due diligence.

It’s essential to conduct thorough research and consult with a financial advisor to determine the suitability of any REIT investment based on your specific goals, risk tolerance, and overall portfolio diversification needs.

Building a Diversified REIT Portfolio for 2024

While the REITs mentioned above represent compelling opportunities within their respective sectors, building a well-diversified REIT portfolio is crucial for mitigating risk and enhancing long-term performance. Here are some key considerations:

1. Diversify Across Multiple Property Types: Allocate your REIT investments across various sectors, such as residential, industrial, healthcare, retail, and others. This diversification can help offset potential weaknesses in any single sector and provide exposure to different economic drivers.

   For example, you could consider a portfolio that includes a residential REIT like AvalonBay Communities, an industrial REIT like Prologis, a healthcare REIT like Welltower, and a retail REIT like Realty Income Corp. This diversification across sectors can help mitigate the impact of market cycles and sector-specific risks.

2. Consider Tax Advantages: REITs offer unique tax advantages, as most of their income is distributed as dividends, which are typically taxed at lower rates than ordinary income. Consult with a tax professional to understand the implications of REIT investments within your overall tax strategy.

   For example, holding REITs in a taxable account can be advantageous for investors in higher tax brackets, as the dividend income may be subject to lower tax rates compared to ordinary income.

3. Balance Income and Growth: Decide whether your primary goal is generating income through higher-yielding REITs or pursuing capital appreciation through growth-oriented REITs. Many investors combine both strategies within their REIT portfolio.

   Income-focused investors may prioritize REITs with higher dividend yields, such as Realty Income Corp. or Ventas, while growth-oriented investors may favor REITs like Prologis or Crown Castle, which offer greater potential for capital appreciation driven by secular growth trends.

4. Align with Overall Asset Allocation: Determine the appropriate allocation to REITs based on your investment objectives, risk tolerance, and overall asset allocation strategy. REITs can provide diversification benefits when combined with other asset classes like stocks and bonds.

   A common recommendation is to allocate 5-10% of a well-diversified portfolio to REITs, depending on your risk tolerance and investment goals. However, this allocation should be tailored to your specific circumstances in consultation with a financial advisor.

5. Consider Geographic Diversification: While many REITs operate within the United States, some have international exposure or may focus on specific regions or markets. Diversifying across geographic regions can help mitigate localized economic risks and provide exposure to different growth opportunities.

Remember, while REITs can be excellent sources of passive income and portfolio diversification, it’s crucial to conduct thorough research, understand the risks involved, and consult with a financial advisor to ensure your investments align with your long-term goals.

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Conclusion

The REIT landscape presents a wide range of opportunities across various sectors. From healthcare and retail to residential, industrial, and data centers, carefully selecting the best REITs can offer attractive income streams, portfolio diversification, and potential for capital appreciation.

When evaluating REITs, focus on factors such as strong property fundamentals, attractive and sustainable dividend yields, healthy balance sheets, and proven management teams. Additionally, consider diversifying across multiple REIT types to mitigate risk and enhance overall portfolio performance.

While this article highlights some of the top REIT picks for 2024, it’s essential to conduct further research and consult with a financial advisor to align your investments with your specific goals and risk tolerance. Remember, successful REIT investing requires a long-term perspective, a disciplined approach, and a willingness to adapt to changing market conditions.

Selecting the best REITs and building a well-diversified portfolio, you can position yourself for stellar returns and passive income streams in 2024 and beyond.