Top Picks Among REITs

02/04/2016 7:00 am EST


Briton Ryle

Editor, The Wealth Advisory

We recommend selected real estate investment trusts as core holdings in our model portfolio; these two REITs rate among our favorites, asserts Briton Ryle, editor of The Wealth Advisory.

Realty Income (O) is among the premier REITs on the market and makes a great addition to any income portfolio.

It owns a diversified portfolio of 4,284 properties located in 49 states and Puerto Rico, with over 66.8 million square feet of leasable space leased to 231 different commercial tenants doing business in 47 separate industries.

The dividend is paid monthly, which makes for faster compounding (4.6% a year for the last 20 years, with consecutive hikes for 19 straight). And that dividend payment is up 33% since 2010.

For the second quarter, that portfolio generated funds from operations (FFO) of $0.68 per share and revenue of $253 million, an 11% gain. I have raised my rating back to buy, with a 12-month target of $65.

Omega Healthcare Investors (OHI) remains my favorite healthcare REIT and one of my favorite REITs in general.

Of its revenues, 89% are contracted through 2020. OHI is growing faster—and growing its dividend faster—than any other healthcare REIT.

During the first quarter, Omega completed the acquisition of Aviv REIT, another healthcare REIT. Omega now owns over 900 properties in 41 states.

Management recently delivered another resoundingly successful earnings report for the third quarter. FFO of $0.79 per share beat estimates and revenue fell within a million dollars of the consensus.

Not only has Omega increased its dividend 13 times over the past 13 quarters, but management has hiked the payout by more than 150% over the past decade.

With a 6.4% dividend, strong potential for 20% annual returns, and an attractive forward P/E of 10.8, we continue to rate Omega Healthcare a strong buy under $40.

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