4 REIT Stocks to Consider as U.S. Treasury Yield Declines

Demand for the safe haven of U.S Treasury bonds has risen dramatically amidst renewed concerns over lackluster global economic growth, probable exit of the U.K. from the European Union and declining oil prices.

Investors’ chase for better returns has intensified in June given the fall in global bond yields due to the given concerns. On Thursday, the 10-year note yields dropped the lowest to 1.678% since February. Notably, foreign buying of Treasury bonds pushed up the prices of bonds which lead to lowering of yields. Further, per the data given by BMO Capital Markets, $12 billion of 30-year Treasury bonds were auctioned, which drove prices higher and resulted into low yields.

Fueled by the monetary stimulus given by the central banks, yields across several countries like Germany, the U.K., Australia, South Korea and Japan tumbled to ultralow or negative territory. These factors have raised the attractiveness of U.S. Treasuries, which offer relatively higher yields than European and other major sovereign bonds.

REITs: Better Choice for Investors

Given this scenario, real estate investment trusts (“REITs”) can be sort of a saving grace for the investors. This is because REITs are often treated as bonds because of their high dividend paying nature and their price movement has an inverse relationship with treasury yields. REIT stock yields tend to become more attractive when treasury yields fall.

In fact, yield-hungry investors continue to have a large appetite for REIT stocks as the U.S. law requires these to distribute 90% of their annual taxable income in the form of dividends to shareholders. This unique feature made the REIT industry stand out and gain a solid footing over the past 15–20 years.

Further, following the recent dismal jobs report, chances of a rate hike in June has diminished substantially. This has somewhat allayed the concerns of the capital-intensive sectors like REIT, which borrows money from the market.

Stocks to Consider

As such, we have handpicked REIT stocks with a favorable Zacks Rank, as a Zacks Rank of #1 (Strong Buy) or #2 (Buy) indicates higher chances of outperforming the market over the next 1–3 months. Added to these, we have taken those stocks with favorable VGM Score. Here, V stands for Value, G for Growth and M for Momentum and the VGM score is the weighted average of these scores.

We have specifically considered only those stocks which have a dividend yield of more than 5%. Finally, we zeroed in on stocks with P/E ratio at a good discount to the industry average, rendering their valuation all the more attractive.

Here are four such stocks for your consideration:

Apple Hospitality REIT, Inc. APLE is a Richmond, VA-based hotel REIT’s portfolio consists of hotels, guest rooms and resorts.

Zacks Rank #2
VGM Score = C
Dividend Yield (%) = 6.48
P/E (F1) = 10.46

With headquarters in Birmingham, AL, Medical Properties Trust Inc. MPW is engaged in acquiring, developing, and investing in healthcare facilities.

Zacks Rank #2
VGM Score = C
Dividend Yield (%) = 5.83
P/E (F1) = 11.57

Based in Williamsburg, VA, Sotherly Hotels Inc. SOHO is engaged in the acquisition, renovation and up-branding and repositioning of upscale to upper upscale full-service hotels primarily in the Mid-Atlantic and Southern U.S.

Zacks Rank #2
VGM Score = A
Dividend Yield (%) = 6.28
P/E (F1) = 4.29

Armada Hoffler Properties, Inc. AHH is a Virginia Beach, VA-based residential REIT which is engaged in developing, building, owning and managing office, retail and multifamily properties primarily in the U.S.

Zacks Rank #2
VGM Score = C
Dividend Yield (%) = 5.61
P/E (F1) = 13.32

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ARMADA HOFFLER (AHH): Free Stock Analysis Report
 
MEDICAL PPTYS (MPW): Free Stock Analysis Report
 
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