Real estate investment trusts (REITs) - companies that invest in a variety of properties, from office buildings to apartments and self-storage buildings - built big gains in 2019.
A prominent REIT gauge, the FTSE Nareit All Equity REIT Index, gained 25.4% through Nov. 21 (including dividends), with many of the best REITs doing far better. In contrast, the small-cap Russell 2000 Index (used for comparison because the majority of REITs are smaller companies) has gained 18.9%.
Of course, people don't ordinarily invest in REITs to beat the stock market averages. They invest in them for income. By law, REITs must pay out at least 90% of their net earnings as dividends. The average REIT in the FTSE index delivers a dividend yield of 3.6%, compared with 1.8% for both the bellwether 10-year Treasury note and the S&P 500. When the yield of bonds and stocks are so low, REITs become extremely popular.
Real estate also provides diversification. While REITs are still stocks, they don't always move in the same direction as the broad market. And their above-average dividend yields are a nice shelter in a downturn.
While you can invest in a real estate fund, such as the Vanguard Real Estate ETF (VNQ), there are plenty of good individual REITs to buy, many of which offer high yields and reasonable valuations, despite the sector's towering heights this year. "REITs are not a homogenous group," says Chris Kuiper, equity analyst at CFRA Research. In just the past year, REITs have a performance difference of 160 percentage points.
Which ones have the top prospects for the future? Read on as we examine the 10 best REITs to buy for 2020.
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