The 10 best REIT stocks at a glance (2024) » Financial knowledge (2024)

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Investing in the real estate market can be quite interesting. Real estate makes up the majority of my personal portfolio. If you don't want to invest in your own property straight away, you can do so tax-efficiently through oneREITdepict.

In this post I would like to show youwhat a REIT actually is. I'll also show you why REITs are particularly popular with dividend investors and what different REITs there actually are. I will also introduce you to individual REIT stocks.

1. What exactly is a REIT?

A real estate investment trust (REIT) is a special form of oneReal Estate Stock.

Classic real estate stocks like Vonovia AG operate like any other stock corporation and therefore stand in contrast to the typical REIT. A real estate investment trust is only classified as such if its core business is in the real estate sector. REITs also have to distribute a large portion of their profits to shareholders.

REITs must distribute profits

A real estate investment trust must distribute a large portion of its profits to shareholders. REITs are therefore classicDividend stocks.

This approach makes REITs an exciting investment for shareholders who want to focus on diversification. If you only have one or a few properties, your assets are very concentrated on these assets.

With a REIT you ensure a high level of diversification. You invest in a company that owns numerous properties and is therefore well diversified. Since REITs have to distribute a large portion of their profits, a large portion of the rent also goes to you in the form of a dividend.

You can find REITs in all countries and you will always find the significant characteristics. These companies are usually listed on the stock exchange and operate in the real estate market.

Although REITs are very similar, regulation differs depending on the home country.

REITs benefit from tax relief

One of the big advantages of REITs is thatTax exemption for corporate profits. In this way, the legislature ensures that investors in a real estate investment trust are not disadvantaged by taxation.

For German investors, the tax exemption for a REIT means that it is on an equal footing with open and closed real estate funds.

Especially in direct comparison to stock corporations like VonoviaREITs have an advantage. After all, stock corporations have to pay corporation and trade tax on the profits they generate.

In direct comparison to classic real estate stocks, REITs impress with a higher return. You have to pay tax on the profits that flow to you in the form of a dividend - capital gains tax applies here. This must also be paid with normal dividend payments, so there is no further tax advantage here.

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2. What types of REITs are there?

When you think of real estate, the first thing that probably comes to mind is the classic apartment building for rent. The rental income provides capital to the landlord, which he can use to develop the property.

A REIT basically works on the same principle. Through the rental, capital flows into the company. But being classified as a REIT only requires that the company invest in real estate. An immovable asset is not movable, so these companies can invest in all types of immovable assets.

As you can probably imagine, this regulation means that different real estate investment trusts also have different priorities. Basically, REITs can be divided into three categories:

  • Equity-REIT:These REITs invest primarily in real estate and make money through rental income and property sales.

  • Mortgage-REIT:Use real estate to secure bonds. Earn money through interest income.

  • Hybrid-REIT:These are companies that invest in real assets and bonds and pursue a mixed business model.

Of course, there are still differences in the individual REIT classes. In addition to companies that rely on classic rentals, there are also those that rent out infrastructure. So-called container REITs are particularly popular in the USA.

Below is a breakdown of the well-known REIT business models:

IndustryBusiness modelRepresentative
officesRental and development of office spaceBoston Properties
ContainerRental of containers and storage spaceExtra Space Storage Inc.
retail tradeRental of commercial shop spaceRealty Income
HealthRental of retirement homes, hospitals, etcOmega Healthcare
Hotel industryRental and operation of hotels and theme parksEPR Properties
IndustryRental of industrial spacePrologue
InfrastructureRental of transmission towersAmerican Tower
storageProvision of large storage areas and tunnelsIron Mountain
Data centersOperation of data centersDigital Realty Trust
ForestsRental of forest areas for managementWeyerhaeuser
ResideDevelopment and rental of residential propertiesEquity Residential

3. The 10 best REITs for your portfolio

If you as an investor want to invest part of your capital in the real estate market, you shouldanalyze the different REITs in detail.

There are numerous real estate investment trusts on the capital market, so you are literally spoiled for choice. Below I would like to introduce you to the 10 best REITs.

NameISINSectorMarket capitalizationDividend
Realty IncomeUS7561091049retail trade36,99 Mrd. €4,90 %
American TowerUS03027X1000Infrastructure91,62 Mrd. €2,91 %
Public StorageUS74460D1090Container53,29 Mrd. €7,11 %
Omega Healthcare InvestorsUS6819361006Health7,74 Mrd. €8,55 %
PrologueUS74340W1036Industry85,2 Mrd. €2,74 %
Digital Realty TrustUS2538681030Data center29,2 Mrd. €4,81 %
Crown Castle InternationalUS22822V1017Infrastructure56,47 Mrd. €4,85 %
Iron MountainUS46284V1017storage14,63 Mrd. €5,02 %
W.P. CareyUS92936U1097Multiple sectors10,1 Mrd. €6,3 %
Innovative Industrial PropertiesUS45781V1017Industry2,98 Mrd. €6,72 %

As you can see, there are REITs from different sectors. Below I would like to briefly introduce you to the different REIT stocks.

Realty Income – The Monthly Dividend Company

I myself have Realty Income in my portfolio. The reason for this is diversification, as the company rents out numerous commercial properties. Whether cinema, supermarket or gym.

Realty Income can regularly increase its earnings and pass this on to shareholders. The Corona pandemic and the associated lockdowns did not endanger the company in the long term.

Additionally, Realty Income pays a monthly dividend to its shareholders. You can read more about Realty Income in our Realty Income forecast.

Realty Income

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American Tower is the REIT stock for transmission towers

The American Tower share is also in my personal portfolio. The company builds and rents transmission towers to telecommunications providers such as Telekom.

American Tower has the following business areas:

  • U.S. Property
  • Asia Property
  • Europe Property
  • Africa Property
  • Latin America Property
  • Services

Currently, just over 50% of sales are generated in the US market. The company therefore has to invoice in foreign currencies and withstand currency fluctuations.

American Tower can grow dynamically and regularly increases its rents. Dividend investors can look forward to increasing sales in the coming years.

American Tower

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Public Storage is the best-known container REIT

Public Storage is a container REIT. Its core business is the acquisition, development and ownership of self-storage facilities.

What's exciting about the self-storage market is the fact that the market is highly fragmented. The 10 largest US self-storage companies just aroundControlling 22% of the total market. This offers the major providers enormous growth potential through acquisitions and capacity expansions.

In the past, shareholders have benefited from dynamic dividend growth. However, analysts are more pessimistic about the future. However, at low entry prices, Public Storage shares can be a good buy.

The Company is engaged in the acquisition, development, ownership and operation of self-storage facilities. The company operates in the following segments: Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks and Investment in Shurgard. The Selfstorage Operations segment covers the rental business of all self-storage facilities. The Ancillary Operations segment is engaged in the sale of merchandise and reinsurance of policies against damage to goods stored by self-storage tenants, activities related to the primary self-storage rental business. The Investment in PS Business Parks segment includes commercial properties, primarily multi-tenant flex, office and industrial parks. The Investment in Shurgard segment owns self-warehouses in seven Western European countries that operate under the Shurgard brand name. The company was founded in 1972 by Bradley Wayne Hughes, Sr. and Kenneth Q. Volk, Jr. and is headquartered in Glendale, CA. At the beginning of 2022, the company employed 5,800 people.

Public Storage

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Omega Healthcare Investors focuses on the growing care sector

Omega Healthcare Investors is oneMortgage REIT. The company deals with financing and providing capital for the healthcare industry. The focus is on care facilities.

The company's portfolio consists of long-term rental agreements and mortgage agreements. In the long term, focusing on the healthcare market is likely to be lucrative, as we are also talking about one in the USA – the home market of Omega Healthcare Investorsaging population.

The Omega Healthcare Investors REIT share is quite interesting for dividend investors. The company currently pays a dividend of 8.57% p.a. However, the dividend is stagnating at a high level.

Omega Healthcare

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Prologis focuses on leasing industrial space

With Prologis you invest in a REIT that rents out industrial space. The company is divided into the Real Estate Operations and Strategic Capital segments.

Real Estate Operations is the operational arm of the company. This means that this segment represents the ownership and development of logistics properties. The rental income, returns and expenses for the corresponding properties are also incurred here.

Strategic Capital is the segment for managing corporate investments. This is – as the name suggests – a strategic arm.

Prologue

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Digital Realty Trust is the data center REIT

Digitalization has found its way into our everyday lives. Regardless of whetherThe Tech Stock,Semiconductor stocksor justData center operators– these business models offer rosy prospects for the future.

One company that focuses on data centers, colocation and interconnection solutions is Digital Realty Trust. This company operates in a growth market and can attract investors with a high dividend. In addition, Digital Realty Trust has been able to regularly increase the dividends paid in recent years - there were a total of 17 dividend increases in a row.

Commercial rentals are expected to increase sales in the coming years. However, rising costs for customers can initially lead to a decline in profits or stagnation. Investors should also keep the cost of capital in mind when making this investment.

Digitale Realty Trust

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Crown Castle International offers modern infrastructure solutions

Crown Castle International is a REIT in the infrastructure sector. The topic focus is on the provision of wireless infrastructure.

Crown Castle offers transmission towers and broadband lines for this purpose. For this purpose, this REIT operates the following two segments:

  • Towers
  • Fibers

In the tower sector, Crown Castle competes with American Towers. However, the focus is exclusively on the US market, so currency differences have no significant influence here. With Fibers, this REIT serves the fiber optic market and provides the necessary infrastructure.

For friends ofDividend strategythis REIT is particularly exciting. Crown Castle International currently offers a dividend yield of 4.58%. In addition, the company has been able to increase its dividend by 9.52% per year over the last 7 years - analysts also expect comparable dividend increases in the future.

Crown Castle

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Iron Mountain offers storage and information solutions

This REIT is internationally diversified. The following business areas belong to Iron Mountain:

  • North American Records & Information Management Business
  • North American Data Management Business
  • Western European Business
  • Other International Business
  • Global Data Center Business
  • Corporate & Other Business

In our Iron Mountain forecast we show you how the different segments work. However, the focus is on file management, destruction and fulfillment.

Compared to other REITs, Iron Mountain's business is very labor-intensive - as of 2022, this REIT has more than 25,000 employees.

The dividend of around 5% is quite attractive for dividend investors. The dividend has not been reduced for 11 years. However, no major increases are expected in the coming years, so you should take this into account when making your investment decision.

Iron Mountain

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W.P. Carey impresses with a diversified business

At W.P. Carey is a hybrid REIT. Basically, the company is active in two business areas:

  • Real Estate Ownership
  • Investitionsmanagement

When it comes to real estate ownership, the company focuses on commercial properties. W.P. benefits from this. Carey of regular rent increases. Investment management takes care of investments and debt capital placement transactions as well as the management of real estate investments.

Currently W.P. Carey investors a dividend yield of 5.74%. The dividend has been increased for 23 years in a row, so that the company was ranked one in 2 yearsDividend aristocratscan rise. However, the dividend is growing slowly - at 1.2% p.a. over the last 5 years.

W.P. Carey

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Innovative Industrial Properties relies on cannabis

You don't want inCannabis stocksinvest but still benefit from market growth? Innovative Industrial Properties is a REIT focused on acquiring, owning and managing cannabis assets.

Rental is exclusively to licensed operators who grow cannabis for medical purposes. The company is comparatively young and has only existed since 2016. At the beginning of 2022, the company only employs 18 people.

Innovative Industrial Properties currently offers a dividend yield of 6.75%. The dividend has been paid for 4 years and is increased regularly. On average, this increased by 74.89%. According to analysts, it is expected to continue to rise by more than 20% p.a. in the coming years.

Innovative Industrial Properties is a REIT with growth potential. However, an investment is also speculation on a growing cannabis market.

Innovative Industrial Properties

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4. Advantages and disadvantages of REITs

REITs are certainly exciting for dividend investors. There are REITs that already have one todayhigh dividend yieldand those that can increase distributions in the long term.

For me, REIT stocks are a good addition to the portfolio. However, here I am focusing on industries that I do not personally refer topropertydepict. If you have properties for rent in your portfolio, you shouldDo not overweight REITs as an investment.

Overall, it shows that REITs are more suitable for investors who do not want to invest in a specific business model. Instead, the focus is on investing in a specific type of property.

The tight regulation helps REITs provide a clearer framework regarding dividend policies. After all, we have to here90% of profits to shareholdersflow. The profits of these companies are tax-free.

When you invest in a REIT, you benefit from the potential of the real estate market. On the other hand, you don't have to worry about development, maintenance and rental.

The followingAdvantages and disadvantagesyou should consider when investing:

Advantages of REITs

  • Lower entrepreneurial risk because a REIT is regulated

  • High dividends as 90% of profits go to shareholders

  • Even a small investment enables participation in the real estate market

  • You don't have to take out a loan to finance it

  • Broad diversification through real estate portfolio

Disadvantages of REITs

  • Regulation means less entrepreneurial leeway for companies

  • High interest rate risk

  • Hardly any German REITs available

  • Some segments may represent high risk for REIT

5. Which German REITs are there?

In Germany, REITs play a minor role. There are currently only 5 REITs in Germany.

German REITs

REITISIN
alstria office REITDE000A0LD2U1
German Industrial REITDE000A2G9LL1
German consumer REITDE000A14KRD3
Fair Value REITDE000A0MW975
Hamborner REITDE000A3H2333

Especially when compared to the largest German real estate company, Vonovia, it becomes clear how small the German REIT market is. In 2021, German REITs had a market capitalization of just €5 billion. In the comparable period, this corresponded to a seventh of Vonovia's market capitalization.

If you want to reflect the German real estate market, then REITs are not a suitable investment. However, they can definitely convince with their portfolios. Personally, however, I prefer foreign REITs that invoice in USD for diversification purposes.

6. Why should you invest in a REIT?

Now let’s look at the reasons for investing in REIT stocks. First and foremost, REITs are real onesDividend stocks. So if you want to generate passive income through your investments, then REITs are a suitable vehicle for this.

In addition, REITs provide diversification to classic stocks from other sectors. If you already have real estate stocks like Vonovia in your portfolio, then there is another oneDiversification with REIT stocksrather no sense. If this is not the case, then you should definitely look into the matter.

Dividend growth stocks are particularly exciting for investors with a long investment horizon. These companies pay rather small dividends in the here and now, but increase them very quickly. So after a few years there is already onehigh, personal dividend yield.

There are also REITs that meet these requirements and thus ensure increasing cash flows in the future. For example, tower REITs or storage REITs should be mentioned here.

In contrast to classic dividend growth stocks, many REITs already offer attractive dividend yields. Accordingly, real estate investment trusts are perfect if you are pursuing a dividend strategy.

You should take into account the fact that theReturn of a REITdepends largely on the current interest rate situation on the market. If companies have to refinance more expensively and have a high debt capital ratio, this can become a risk.

In my opinion, a REIT also makes sense in your portfolio if you don't yet have any real estate. This allows you to focus on special properties and benefit from themlong-term increase in value on the real estate market. If this is even commercial real estate, then companies can benefit from increasing sales in the long term - provided the rental market supports these increases.

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7. Conclusion: REIT stocks are an attractive investment

I myself have a few REITs in my portfolio. These include, for example, Realty Income and American Tower. Both companies have impressed with good dividends and nice dividend increases in recent years.

Based on my personal allocation, both companies play a minor role. The reason for this is the thematic focus on rentals. If you are interested in dividends, then a REIT is a sensible investment.

Long-term increases in rental income automatically lead to increasing dividend income. However, one risk that you should be aware of concerns interest rate developments. Additionally, many companies have long-term rental agreements. Due to high inflation, these are sometimes not enough to compensate for the inflationary development. As a result, prices may fall.

8. Frequently asked questions about REIT stocks

A REIT is a specially regulated stock corporation in the real estate sector.

A REIT must distribute a majority of its profits to shareholders.

There are numerous REITs. The following sectors can be found in REIT stocks:

  • offices
  • Container
  • retail trade
  • Health
  • Hotel industry
  • Industry
  • Infrastructure
  • storage
  • Data centers
  • Forests
  • Reside

There are only five REITs in Germany. This is:

  • alstria office REIT
  • German Industrial REIT
  • German consumer REIT
  • Fair Value REIT
  • Hamborner REIT

REITs are also normal stock companies. However, real estate investment trusts are particularly regulated.

If you rely on dividends, then you should invest in a REIT. A normal real estate share, on the other hand, has more leeway in the use of funds.

The 10 best REIT stocks at a glance (2024) » Financial knowledge (9)

Sebastian Rau

founder

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About the author

I'm Sebastian, one of the co-founders of Finanzwissen. After completing my dual studies in the automotive industry, I moved to one of the largest automobile banks in Germany. Over the course of my career, I have been able to develop a thorough knowledge of finance and investments. Today I invest primarily in real estate, stocks and cryptocurrencies and would like to pass on my knowledge.

4 comments on the post

    Anonymized user

    December 5, 2023

    Great, detailed article, thank you very much. The interest rate risk is likely to play into the hands of real estate due to the comparatively high current interest rates, with the prospect of them falling again. In addition to the currently high distribution yields, the prices could also recover strongly again, which would have a double effect - unless one or the other participant runs out of steam. Vonovia, for example, inevitably has to sell billions of dollars in real estate in order to get back on its feet. As a result, income also disappears. There is no end in sight.

      Anonymized user

      December 6, 2023

      Hello Enrico, thank you for the praise 🙏. And the article actually needs a little revision in light of the current market conditions. In my opinion, real estate values ​​in particular have potential to catch up in the coming months if we assume that interest rates will fall. At the same time, I do not expect rents to fall, so that companies could benefit from increasing profits. Of course, high levels of over-indebtedness are the fundamental risk in this industry and, especially in Germany, energy-saving renovations lead to additional challenges. Many greetings, Sebastian

    Anonymized user

    15 January 2023

    Thank you for this great article!

      Anonymized user

      15 January 2023

      Thanks for the positive feedback 😊Greetings, Sebastian

I am Sebastian Rau, one of the co-founders of Finanzwissen, and I have a strong background in finance and investments. My expertise is built on a dual study program in the automotive industry, followed by a career in one of the largest automotive banks in Germany. Throughout my career, I have gained comprehensive knowledge of finance and investments. Currently, my investment focus lies in real estate, stocks, and cryptocurrencies.

Now, let's delve into the concepts discussed in the article about Real Estate Investment Trusts (REITs):

1. Real Estate Investment Trusts (REITs):

What is a REIT?

  • A REIT is a special form of a real estate stock.
  • Unlike traditional real estate stocks such as Vonovia AG, a REIT is classified as such only if its core business is in the real estate sector.
  • REITs must distribute a significant portion of their profits to shareholders, making them classic dividend stocks.

Advantages of REITs:

  • Diversification: REITs offer high diversification as they invest in numerous properties.
  • Dividend Income: A substantial portion of the rental income is distributed to shareholders as dividends.
  • Tax Benefits: REITs benefit from tax exemptions on corporate profits, ensuring investors are not disadvantaged by taxation.

Types of REITs:

  1. Equity REIT: Invests primarily in real estate, earning money through rental income and property sales.
  2. Mortgage REIT: Uses real estate as collateral for bonds and earns money through interest income.
  3. Hybrid REIT: Invests in both real assets and bonds, following a mixed business model.

2. The 10 Best REITs for Your Portfolio:

Featured REITs:

  • Realty Income (US7561091049): Monthly Dividend Company, known for diversified commercial properties.
  • American Tower (US03027X1000): Specializes in building and renting cell towers globally.
  • Public Storage (US74460D1090): Major player in the self-storage market.
  • Omega Healthcare Investors (US6819361006): Focuses on financing and providing capital for healthcare facilities.
  • Prologis (US74340W1036): Engaged in leasing industrial spaces.
  • Digital Realty Trust (US2538681030): Specializes in data centers, colocation, and interconnection solutions.
  • Crown Castle International (US22822V1017): Provides wireless infrastructure solutions.
  • Iron Mountain (US46284V1017): Offers storage and information management solutions.
  • W.P. Carey (US92936U1097): A Hybrid REIT involved in real estate ownership and investment management.
  • Innovative Industrial Properties (US45781V1017): Focuses on cannabis-related properties.

3. Reasons to Invest in REITs:

  • Passive Income: REITs are excellent for generating passive income through dividends.
  • Diversification: Provides diversification, especially if you don't have real estate properties in your portfolio.
  • Dividend Growth: Some REITs exhibit potential for significant dividend growth.
  • Real Estate Exposure: Investing in REITs allows you to benefit from the real estate market without managing properties.

4. Pros and Cons of REITs:

Pros:

  • Regulation: REITs are highly regulated, reducing entrepreneurial risk.
  • High Dividends: Due to the requirement to distribute profits, REITs often offer high dividends.
  • Accessible Investment: Even a small investment allows participation in the real estate market.
  • Diversification: REITs provide broad diversification through their real estate portfolios.

Cons:

  • Limited Entrepreneurial Freedom: Strict regulations limit entrepreneurial freedom.
  • Interest Rate Risk: Vulnerable to changes in interest rates.
  • Limited Availability of German REITs: German REIT market is small compared to other countries.

5. German REITs:

  • Germany has only five REITs: alstria office REIT, Deutsche Industrie REIT, Deutsche Konsum REIT, Fair Value REIT, and Hamborner REIT.
  • German REITs have a market capitalization much smaller than major real estate companies like Vonovia.

6. Why Invest in REITs?

  • REITs offer a source of passive income through dividends.
  • They provide diversification, especially for those without existing real estate holdings.
  • Some REITs exhibit potential for dividend growth, making them attractive for long-term investors.

7. Conclusion:

  • Personal portfolio includes REITs such as Realty Income and American Tower.
  • REITs are beneficial for investors interested in dividends and seeking diversification.
  • Considerations include interest rate risks and the impact of inflation on long-term lease agreements.

8. FAQs:

  • Definition of REIT: A highly regulated form of an Aktiengesellschaft (stock corporation) focused on real estate.
  • Types of REITs: Equity, Mortgage, and Hybrid REITs, each with specific investment focuses.
  • Author's Investment Approach: REITs are a valuable addition to the portfolio, particularly for dividend-focused investors.

This comprehensive overview provides insights into the world of REITs, covering their types, advantages, featured examples, and considerations for potential investors.

The 10 best REIT stocks at a glance (2024) » Financial knowledge (2024)

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