Now, the Fed has not yet started cutting interest rates, and instead kept the benchmark federal funds rate unchanged for the fourth straight meeting at the Federal Open Market Committee (FOMC) meeting on January 24th.
This remains good news for the overall stock market, which rebounded from the bull market last fall when the Fed began hinting that it would cut interest rates as many as four times in 2024 alone. But the FOMC has yet to declare victory in the fight against inflation and has not made any promises about when it will start cutting rates, leaving one sector left out: real estate investment trusts.
Since the January 24th Fed meeting, S&P500 It rose another 1.4%, but CRSP US REIT Index It fell by about 0.7%. This adds to the lag that publicly traded REITs have seen since the current bull market began back in October, as seen below.
^CRUSREIT data by YCharts.
Interest rates hit REITs hard, but some blue chips stand out
REITs own pools of income-producing real estate. They are also issuers of real estate dividend stocks that compete with bonds for investor attention. However, they themselves can build long-term records of strong performance that rival the larger market, and in some cases match or exceed the total returns of major indexes.
While some companies are diverse, most specialize in a specific area, from cell towers to signage, warehouses, offices, apartments, and retail space.
All companies are particularly sensitive to interest rates because they are required to pay out at least 90% of their taxable income as dividends instead of passing the tax liability on to shareholders. As a result, these passive income machines tend not to hold much cash and must borrow money to finance their acquisitions.
REITs rallied after the Fed signaled it would stop raising interest rates. The increase ended when the cuts failed to materialize with no clear indication of when they would begin. But that doesn't mean there aren't good buys to consider here.I think it should be considered Agree real estate (New York Stock Exchange: ADC) and american tower (NYSE:AMT).
^SPXTR data (by YCharts).
The graph above shows that each REIT has nearly doubled the S&P 500 in total return since the beginning of this century. While there is no guarantee of future performance, both companies have shown resilience through business cycles. They have an investment grade balance sheet to continue to fund their growth plans at a reasonable cost and an experienced and skilled management team to successfully execute those plans.
Means and mitigation measures to utilize and continue it
It all starts with leveraging opportunities, and both American Tower and Ugly Realty have just that, building on their respective businesses with recession-proof, reliable markets that provide essential rental space and services. It has a strong position in the sector.
In American Tower's case, this means approximately 225,000 cell phone towers, small antennas, and data leased to all major mobile carriers, thousands of other high-tech and traditional companies, government agencies, and other organizations. We are continually adding to our worldwide network of center spaces. .
Meanwhile, Agree Realty is banking on the good fortune of retailers signing long-term net leases for its portfolio of 2,135 properties in 49 states. Most of that space is leased to investment-grade brands in inflation- and e-commerce-proof businesses, such as grocery stores, convenience stores, and home improvement stores.
With solid demand for space and a proven ability to strengthen portfolios and dividends, current prices look like a potential bargain, especially for growth and income investors looking to make long-term purchases this month. Masu.
American Tower currently has a yield of about 3.5%, while Agri Realty has a yield of about 5%, and both companies have steadily raised their dividends. It is also poised to rise if interest rates start to trickle down.
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Marc Rapport has positions in Agree Realty and American Tower. The Motley Fool has a position in and recommends American Tower. The Motley Fool recommends the following options: A long January 2026 $180 call on American Tower and a short January 2026 $185 call on American Tower. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
