4 Favorite REITs for Growth & Yield

Real estate investment trusts have been strong performers this year and the recent sharp decline in interest rates has only increased attention to this sector. Several MoneyShow.com contributors have chosen their current favorite REITs for investors seeking a combination of capital gains and dividends. Robert Rapier, Investing Daily's Utility Forecaster For a new addition to our income portfolio, I searched the universe of REITs for a combination of yield, safety and consistency. After reviewing several candidates, I decided that STORE Capital looked like a good choice based on the numbers, so I started to do a deeper dive. One of the first things I learned is that Warren Buffett's Berkshire Hathaway bought into the company in 2017, and today owns a stake worth 8.2%. That was a good early sign that I was on the right track. STORE Capital is an internally managed net-lease REIT. The company engages in the acquisition, investment, management, and ownership of single tenant operational real estate properties. STORE is a triple-net REIT, which means its tenants must pay property taxes, building insurance, and maintenance or repairs in addition to rent. At present, STORE has 2,334 properties leased to 447 customers operating across more than 100 industries. Since its 2014 initial public offering (IPO), the company has managed annual occupancy rates of at least 99.5%. It has increased dividends each year since its IPO, and has had a double-digit investor return every year. So, what's not to like? STORE isn't a bargain. It's close to fully valued at the current price. Nevertheless, STORE is a blue chip REIT -- the only REIT owned by Berkshire Hathaway. STORE's management team has over 110 years of real estate investing experience, and they have successfully run three previous real estate funds. We may not be getting a bargain, but we are getting a REIT that should continue to grow its dividends safely and consistently over time. Despite my concerns that STORE is fully valued, I will provide a modest cushion on the buy price. You shouldn't buy this for the short term though. If you have reservations about the value, set a limit order about 10% below the current price. STORE Capital is a Buy under $38. Mark Skousen, High-Income Alert Our high-dividend stocks just keep pressing higher -- and I'm still finding attractive opportunities out there. One of them is Crown Castle International . Crown Castle is based in Houston and leases more than 40,000 cell towers, supported by 75,000 route miles of fiber helping small cells, to wireless communications companies like AT&T and Verizon. Of course, we don't just go online anymore. We exist there. Our computers, tablets and smartphones are all connected to the internet. And soon, traffic lights, household appliances and self-driving cars will be, too. Crown Castle, with its towers, small cells and fiber, makes these connections possible. And it will become even more essential with the advent of 5G, the next generation of wireless connectivity. 5G is capable of delivering data at up to 1 gigabyte per second. That's 20 times faster than current networks. The service, rolling out in select cities across the United States this year, will drastically increase the number of devices that can be simultaneously managed on a wireless network. As carriers transition to the 5G standard, as they all will eventually, Crown Castle International will be a huge beneficiary. Sales and earnings are set to ratchet sharply higher in the weeks and months ahead. Not that business is shabby now. In the recently reported second quarter, earnings per share soared 37% on an 11% increase in sales. The company enjoys a 28% operating margin. And annual revenue tops $5.7 billion. However, insiders are signaling that the best is yet to come. In April, chairman Landis Martin made the company's biggest insider buy in over two years -- by purchasing 18,350 shares at an average price of $123.13 for an investment of $2.26 million. He was back at the trough last week with another major buy: 16,300 shares at an average price of $127.28, an investment of $2.07 million. He now owns more than 130,000 shares worth over $16.9 million at the current market. That's what I call a high degree of conviction. There is plenty of trading potential here. But there's also a 3.5% dividend yield. Crown Castle is organized as a real estate investment trust. So, it will pay out at least 90% of net income to shareholders each quarter. In short, this is a high-quality play with sound fundamentals, excellent growth prospects and telltale insider buying. Bryan Perry, Cash Machine Since interest rates are heading lower in the United States, the dollar remains king among all global currencies. Plus, the demographics of the U.S. population show an expanding retirement population that is living longer, so I thought this month's pick in a high-yield, highly defensive domestic asset would be fitting. Good health care is undeniably at the top of the list for every retired and elderly citizen and thus offers some excellent investment propositions in the right sub-sectors. One of those sub-sectors I find attractive against the current market landscape is the health care facilities space. The largest skilled nursing facility (SNF) and assisted living facilities operator in the industry is Omega Healthcare Investors -- a REIT that spans 41 states in the United States, as well as the United Kingdom. The company's portfolio consists of 891 operating facilities. Gross real estate investments are approximately $9.0 billion. Omega operates triple-net-lease properties, which means it isn't liable for the three big add-ons that can put a strain other REITs -- taxes, maintenance and insurance. Omega just collects the rent from the health care companies that lease from it, eliminating a lot of unknown risks. The dividend yield is right at 7.0% with the next ex-dividend date set for around Aug. 15. Shares of Omega have been trading in a tight range for the past four months and should push higher in a market where bond yields are in steady decline. Let's add this REIT to our Safe Haven model portfolio. Ben Reynolds, Sure Dividend Tanger Factory Outlet Centers is one of the largest owners and operators of outlet centers in the United States and Canada. It operates and owns, or has a stake in, a portfolio of 40 upscale outlet shopping centers, totaling 14.4 million square feet across 20 states and Canada. The company leases over 2,900 stores that are operated by over 500 different tenants and frequented by more than 181 million shoppers every year. Tanger outlets are known for their tenant mix of leading designer and brand-name manufacturers. The outlet centers allow customers to purchase a variety of brand-name products directly from the manufacturer -- eliminating the third-party retailer. The REIT's main focus this year is on leasing and marketing their properties as they attempt to offset the impacts on announced funds from operations (AFFO) from previous rent adjustments and tenant bankruptcies. We estimate that AFFO/share growth will slow slightly from its 5.7% half-decade average, given the current trend towards e-commerce; and compound instead at 4.0% over the next five years. Similarly, we estimate that dividend growth will slow, coming in at 5% over the next 5 years, with the low payout ratio (63%) and flexible balance sheet (BBB+ credit rating) leave plenty of room for payout growth. Additionally, given management's track record of success spanning nearly four decades that the REIT went through the Great Recession virtually unscathed (AFFO fell only 2.2% from 2008 to 2010 and the dividend continued to grow each year), we view it as recession resistant. Over the last five years, Tanger traded at an average P/AFFO of 13.5, and the 10-year average multiple is 15.9. The current P/AFFO of 7.2 based on 2019's estimated AFFO ($2.25 per share), represents a 47% discount to the 5-year average P/AFFO and an even larger one relative to the past decade. We believe that, over time, Tanger's multiple will expand closer to its average, but remain a bit lower at ~12 times AFFO. Expansion of the valuation multiple to our fair value estimate is expected to add 10.8% annually to shareholder returns, indicating that the stock is significantly undervalued right now. The dividend yield, meanwhile, has been pushed to highs lately as the stock price has fallen, and now stands at 8.7%. The dividend yield is significantly higher than its 5-year average yield. Combined with our projected AFFO/share growth rate of 4%, we estimate that Tanger Factory Outlet will generate extremely high annualized total returns of 23.5% over the next 5 years.

4 Favorite REITs for Growth & Yield

These names are ideal for investors seeking a combination of capital gains and dividends.

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