In every down market cycle, certain sectors and their stocks develop intriguing price discounts along with high dividend yields. Prudent investors must decide whether to buy the proverbial “blood in the streets” or to pass on the “falling knives.” Each investor has their own risk-reward tolerance that guides them accordingly.
Real estate investment trust (REIT) stocks in particular have been a much-maligned sector of late, with many of them down 20%, 30% or more from their November 2021 highs. Some of this is justified as higher interest rates historically have pummeled the REIT sector, but many stocks appear to have been trashed more than is necessary.
Investors may worry about dividend cuts, but there are REITs that have shown historical stability through rough times. Here are two that may be high risk in the short run but could have enormous potential for high reward in appreciation and yield down the road.
Apartment Investment and Management Co. (NYSE:AIV) is a Denver-based REIT that owns, leases and manages apartment complexes. Also known as AIMCO, the REIT has over 6,000 units across the U.S., and its assets under management total $3.5 billion. AIMCO went public in 1994.
AIMCO stock had been an underachiever for many years, even selling for less than 50 cents at the market bottom in 2009. But since that time, the stock has slowly but surely moved higher and recently touched $9 per share. While other REIT stocks have recently sold off, AIMCO has been ascending as apartment rents have skyrocketed. Second-quarter earnings of $239 million beat Wall Street estimates handily. Much of this was the result of four development assets leased from AIR Communities that considerably boosted the bottom line.
Additionally, in July, AIMCO announced it would increase its stock repurchase to $15 million from $10 million and also stated that for the first time since 2020 it would pay a dividend of 2 cents to shareholders. That will give AIMCO stock an annualized dividend of 8.8%.
Looking forward, with inflated housing prices and mortgage interest rates, many tenants are forced to continue renting, a circumstance that bodes well for apartment REITs. If you don’t mind a bit of risk along with the potential for continued appreciation and newly reinstated quarterly dividends, AIMCO could be quite rewarding for investors going forward.
Brandywine Realty Trust (NYSE:BDN) is a Philadelphia-based REIT that owns, develops, leases and manages 175 diverse mixed-use commercial properties from the Northeast to Texas.
Brandywine’s stock has languished along with the general REIT sector this year, with rising interest rates and fears of recession leading to a price decline from $14.88 to a recent low of $7.82 per share. Yet Brandywine recently improved on its second-quarter funds from operations (FFO) to 34 cents year-over-year from 32 cents in 2021. Improvement was also noted in revenue of $124.04 million for the quarter.
Brandywine’s current price of $8.27 is enriched with a quarterly dividend of 19 cents per share, yielding 9.1% annually. The dividend has grown by 18% over the past five years and has been quite stable. Although fears of declining occupancy rates in a prolonged recession may increase the risk to commercial REITs in the short term, Brandywine could be a high-reward stock when the economy improves.
Looking for high dividend yields without the price volatility?
Real estate is one of the most reliable sources of recurring passive income, but publicly-traded REITs are just one option for gaining access to this income-producing asset class. Check out Benzinga's coverage on private market real estate and find more ways to add cash flow to your portfolio without having to time the market or fall victim to wild price swings.
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