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Real estate investment trusts (REITs) are one of the most attractive places for income investors. Not only do REITs have a strong track record for growing dividends, they can also reward investors with a growing stock price, meaning investors can win two ways.
REITs have a special tax advantage that’s not available to most companies. They are not charged taxes on their corporate earnings in exchange for paying out most of those earnings to shareholders. This advantage tends to make REITs an attractive place to finance real estate, meaning that the industry continues to grow and acquire more investment-quality properties.
To find some top-performing names for the long term, we’ve screened the REIT sector for some of the most promising characteristics.
Best REITs by total return
The REITs here show the highest total return over the last five years using the following criteria:
- American companies trading on local exchanges
- A growing dividend over the last five years
- A positive total return over the last five years
| Company (ticker) | 5-year total return | Dividend yield | 5-year dividend growth |
|---|---|---|---|
| Data from Charles Schwab as of Jan. 9, 2024 | |||
| Innovative Industrial Properties (IIPR) | 157.0% | 7.6% | 66.8% |
| Plymouth Industrial REIT (PLYM) | 156.1% | 3.8% | 1.6% |
| Equinix (EQIX) | 125.0% | 2.1% | 9.5% |
| Prologis (PLD) | 121.8% | 2.6% | 12.4% |
| Eastgroup Properties (EGP) | 107.9% | 2.8% | 13.3% |
| Gaming and Leisure Properties (GLPI) | 99.7% | 6.0% | 1.1% |
| Extra Space Storage (EXR) | 98.5% | 4.1% | 14.0% |
The results here rank these REITs in order of their five-year total returns to investors, perhaps offering companies that may be able to continue growing at high rates in the future. While past performance is no guarantee of future performance, some REIT sub-sectors may continue outperforming for years, such as logistic properties, self-storage real estate and data centers.
So investors looking for the highest total return – not just the highest current dividends – may want to focus on the best REITs in the hot or soon-to-be-hot sectors.
Best REITs for high dividends and growth
Other REIT investors may focus on current income and the prospect for growing dividends – and REITs are one of the best passive investment plays. The REITs below show a combination of high current yield and growth using the following criteria:
- American companies trading on local exchanges
- A current dividend of between 2 and 6 percent
- A dividend growing at least 5 percent annually over the last five years
- A positive total return over the last five years
| Company (ticker) | Dividend yield | 5-year dividend growth | 5-year total return |
|---|---|---|---|
| Data from Charles Schwab as of Jan. 9, 2024 | |||
| National Storage Affiliates Trust (NSA) | 5.5% | 15.6% | 85.3% |
| Crown Castle (CCI) | 5.5% | 8.9% | 23.4% |
| Four Corners Property Trust (FCPT) | 5.5% | 6.5% | 17.1% |
| CareTrust REIT (CTRE) | 5.1% | 8.3% | 43.8% |
| Alexander & Baldwin (ALEX) | 4.8% | 32.6% | 9.9% |
| Lamar Advertising (LAMR) | 4.8% | 7.2% | 77.5% |
| Agree Realty (ADC) | 4.7% | 7.0% | 28.4% |
The table above includes stocks with high – but not too high – dividends and a record of growing their payouts over the last decade. That combination means that you can get a solid dividend now and that it may still grow over time, too. These stocks have all delivered positive total returns over the past five years, so you’re not enduring a capital loss for income, either.
The list excludes some of the market’s highest REIT yields, because that’s usually a signal that the payout is unsustainable and destined to decline. So factoring in a record of strongly growing payouts can help you weed out the high-yielding REITs that may be poised to plunge.
Should you invest in the best dividend REITs?
Whether REITs are right for you depends on a number of factors, with one of the biggest being your need for current income. If you don’t need dividend income, you may be giving up some potential return. That’s because dividends are taxable unless you hold them in a tax-advantaged account such as an IRA. Those taxes slow your ability to compound your wealth.
In contrast, by investing in growth stocks – which typically pay little, if any, dividend – you may be able to amass wealth faster by avoiding dividends and the related income taxes.
Plus, if you’re investing in individual stocks, you need to do the research legwork to understand the company, its financial profile, its opportunities and the potential for gain. So stocks can demand a lot of time investment, though they can be tremendously rewarding, too.
But if you don’t have the time or inclination to do that kind of work, investing in an index fund can be an attractive way to go. The best REIT ETFs allow you to buy a diversified collection of companies that pay an attractive dividend – without the hassle of analyzing individual stocks. That diversification reduces your risk while still allowing you to earn an attractive return.
Bottom line
Following the hottest REITs can help you find companies that may be poised to thrive in the future. But it’s critical that you don’t simply buy REITs without investigating and analyzing them. You’ll need to carefully understand the investment case and why REITs make sense for you.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
