Although the stock market sits near its all-time high, not every sector participates in the bull market. Real estate is the worst-performing sector and the only one to show losses in 2024. It wasn’t any better over the past 12 months, either.
Where the S&P 500 is up 24.5%, the real estate sector has gained just 3.1%. Again, it is the worst-performing sector. And that is excellent news for investors. It means the market is throwing the baby out with the bathwater. There are some outstanding real estate investment trusts (REITs) to buy that are trading at big discounts.
Of course, REITs are dramatically underperforming in the market because of the high interest rate environment. The real estate industry operates on high debt, and rising rates make it more expensive to borrow. Investors have chosen to seek out more risk-free investments and have sold off the real estate market.
The attraction of REITs, however, is their generally lucrative dividend payments. Because REITs are required by law to return 90% or more of their profits to shareholders as dividends, their yields make them especially attractive investments for income investors.
Smart investors should use this period of stock price weakness to find the best REITs to buy. Particularly with the Federal Reserve pink-swearing, we’ll get an interest rate cut soon, with more to follow next year. Now is a great time to buy the three REITs below.
REITs to Buy: Agree Realty (ADC)
The first REIT to buy is Agree Realty (NYSE:ADC), which invests in retailers that thrive with an omnichannel approach. It’s not an either-or strategy but one that encompasses the full matrix of retail opportunity. They are leveraging their brick-and-mortar footprint to expand buy online—pick up in-store, curbside pickup, lockers, and more—making the shopping experience seamless and most convenient to the consumer.
Among Agree’s largest holdings are Walmart (NYSE:WMT), Tractor Supply (NASDAQ:TSCO), TJX Companies (NYSE:TJX), and Home Depot (NYSE:HD).
The REIT typically uses long-term leases that offer stability for the generated regular income streams. Agree’s portfolio consisted of 2,161 properties in 49 states and was 99.6% leased with approximately 8.2 years remaining on the leases.
Shares of Agree Realty are down 2% year-to-date but have bounced 16% off their recent low. That’s likely happening as the market warms up to the potential for interest rates to eventually head lower. The dividend currently yields 4.3% annually, making it a great REIT to buy today.
Realty Income (O)
Most income investors know Realty Income (NYSE:O) because it has been such a star performer since going public in 1994. Unlike many other REITs, Realty Income pays its dividend monthly and has made 648 consecutive monthly payments while raising the payout for 29 straight years. Had you invested just $1,000 in the REIT at its IPO, those shares would be paying over $2,000 a year in dividends.
Over the past two years, Realty Income has issued significantly more stock to avoid paying higher interest rates. Companies can raise money through debt or equity. In low-rate environments, issuing debt makes more sense, while selling stock is preferable in high-rate times like now.
Despite the environment, Realty Income remains financially solid. It has a long history of increasing its adjusted funds from operations (AFFO), a metric similar to free cash flow (FCF) for REITs. Over the past decade, AFFO per share has just about doubled, with Realty Income forecasting $4.13 to $4.21 per share.
With O stock down 7% this year and off 11% over the last 12 months, this is a perfect opportunity to buy Realty Income’s stock at a bargain.
VICI Properties (VICI)
The last REIT smart investors should buy is VICI Properties (NYSE:VICI), which owns the real estate under Caesars Entertainment (NASDAQ:CZR) casinos and MGM Resorts (NYSE:MGM) MGM Grand in Las Vegas.
Spun off in 2017, VICI Properties has built up an impressive track record of dividend payments in a short amount of time. Its dividend has grown at a better than 7% compounded annual rate for the past five years. It also produces substantial AFFO to support the payout. The dividend also delivers a very attractive starting yield of 6% annually.
Like the other REITs, VICI Properties stock is down in the current market, 11% in 2024 and 10% over the past year. As one of only two REITs focused on the casino industry, VICI stock is a bet on the continued growth of Las Vegas and the casino industry. With visits to Sin City up 3% in the first quarter and nearly 4% higher in April (the latest data available), the casino REIT looks like an odds-on favorite to grow.
On the date of publication, Rich Duprey held a LONG position in O stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.