The end of the year is an opportunity for investors to focus on diversification. Although the major stock exchanges continue to hit record highs, investors have reason to be concerned.
The market continues to digest the impacts (real and perceived) of the US-China trade war. Earnings reports, while fundamentally strong, suggest that some weakness may exist. Institutional investors reject the generally fast growing âunicornâ stocks. And 2020 is an election year which introduces uncertainty into the market.
With uncertainty comes volatility. If you are looking for investment strategies to diversify your portfolio, now may be the time to turn to real estate investment trusts (REITs).
REITs own, operate or finance income-generating real estate such as apartment complexes or retail businesses. REITs are highly regulated and must meet a number of qualifications. They are legally required to pay at least 90% of their taxable income in dividends.
REITs often specialize in specific areas such as residential or commercial. But even within these two areas there are distinctions. For example, some REITs focus on healthcare facilities, others on apartments, and others may focus on shopping malls.
Here are three REITs that are gearing up well for whatever comes to the market in 2020.
Sun Communities (SUI)
Dividend yield: 1.89%
The first REIT I want to discuss is Communities of the Sun (NYSE:). Prefabricated houses show the highest growth percentage of all REIT sub-sectors in 2019. Sun Communities is a leading REIT sector with a focus on the Midwest and Southeastern United States.
With a market capitalization of $ 14.96 billion, Sun Communities is a large REIT that has seen steady growth from the depths of the global economic crisis and housing crisis. That said, the stock has recently benefited from a strong real estate market. SUI stock rose by more than 55% in 2019.
On November 19, the housing market showed that it is getting ready to heat even though the calendar says it is winter.
Residential construction jumped in October, with permits at their highest level since May 2007. Housing statistics were also up in October. Although slightly lower than estimated, the number of 1.314 million represents an increase of 8.5% year over year.
SUI should continue to be a catalyst going forward, as many rental properties still cite very low vacancy rates.
Well tower (GOOD)
Dividend yield: 4.18%
The next REIT to consider is Well tower (NYSE:). It is the largest healthcare REIT. Its properties cover a variety of categories across the spectrum of patient care. WELL owns more than 1,517 properties, including hospitals, ambulatory clinics, assisted living facilities and qualified nursing homes in the United States, Canada and the United Kingdom.
Healthcare will continue to be a hot sector with a number of catalysts. For starters, the baby boomer generation is aging and about 63% of WELL’s net operating income comes from senior housing. It is the heart of the company’s portfolio.
And despite the rhetoric about a single-payer and âMedicare for allâ system, about 94% of Welltower’s earnings are private payers, so the stock is not exposed to this risk.
Welltower shares rose more than 26% in 2019. In the second quarter, the company generated revenue of $ 1.3 billion for profit of $ 137.7 million.
It is fair to be worried about a dividend that has not increased for three years. But while it might not be the best in its class, it certainly isn’t the worst. And with the stability you get from the blend of recession-proof properties, it’s a title worth considering.
Dividend yield: 1.76%
Equinix (NASDAQ:) is a REIT with exposure to the growing data center segment. EQIX has more than 200 data centers. Their global customer base includes almost half of Fortune 500 companies.
The EQIX share is up nearly 59% in 2019 compared to S&P 500, which returned 26.8%. But the EQIX action is not a one-year wonder. Over the past 10 years, Equinix stock has risen 640%, crushing the 245% return of the broad market.
Institutional investors expect the company’s earnings per share (EPS) to grow at an average annual rate of 21.4% over the next five years. If this materializes, and there is no reason to believe it will not, the company will continue to have solid growth in its operating funds (OFOs). A larger FFO will allow EQIX to increase its dividend. EQIX shares currently have a dividend yield of 1.76%.
A catalyst for the data center segment is organic growth that comes from recurring revenue. In the case of Equinix, recurring revenue represents approximately 94% of total revenue.
As of this writing, Chris Markoch does not have a position on any of the aforementioned titles.
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