Many of these dividend-paying stocks are trading at attractive prices.
Real estate investment trusts, often called REITs, have had a rough year, sliding amid worries about the impact of higher interest rates and tight credit.
Despite these headwinds, many REITs are now trading at significantly discounted prices while still offering income through high dividend yields.
“Share prices of U.S. REITs have fallen by approximately 35% from their 2021 highs because of higher interest rates and stress in some commercial real estate sectors,” says Suryansh Sharma, equity analyst at Morningstar. “We think the correction is overdone and the current valuations offer an attractive entry point for patient investors.”
In addition, Sharma says, “We estimate that the average REIT within our U.S. coverage is currently trading at a dividend yield 1.26 percentage points higher than the historical average as of the second quarter of 2023.”
REITs own portfolios of properties—office buildings, shopping centers, hotels, apartments, and more—that generate income from rent and capital appreciation. They differ from traditional stocks in that they are required to pay out at least 90% of that income to investors in the form of dividends, making them attractive for income-focused investors.
Heading into 2022, REITs enjoyed a long period of low interest rates and a booming economy, which led to steadily rising property values and rents. But the headwinds of the past year have taken their toll. In 2023, the Morningstar US Real Estate Index, which measures the performance of mortgage companies, property management companies, and REITs, has fallen even as the overall stock market bounced back.
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