3 REITs Scoring High, World Cup Not in Play - Analyst Blog

The 2014 FIFA World Cup frenzy has spread to the equity markets, with investors targeting fans via the sponsors of this mega event. The stocks of these companies are easily getting the striker's position while the non-linked ones, such as real estate investment trusts (REITs), are clearly not being able to go beyond midfield. But just like the result of a football match cannot be predicted, REITs too can surprise with that extra penny in your wallet.

REITs! Why?

This special hybrid asset class saw a cautious start to 2014 due to heightened speculations about the rise in interest rates following the Federal Reserve's tapering. But encouraging economic data opened up opportunities for the real estate dealers to get closer to the goal line. Even the cold snap in the first quarter couldn't restrict appreciation and a number of REITs either maintained or raised their full-year guidance.

More importantly, REITs are performing better than the S&P 500 Index. In May 2014, the FTSE NAREIT All REITs Index registered a total return of 2.8% against the S&P 500's return of 2.4%.

The rise in consumer spending – which accounts for over two-third of the U.S. economic activity – and improvement in the labor market make this an opportune moment for the REIT stocks to win. The industrial, apartment and lodging owners are in particular playing for championship. With demand-supply dynamics in their favor and consumer confidence building up, these REITs are poised to stand out (read: REITs: Something to Build On).

Add to this is the appetizing dividend yield that has helped the REIT industry gain a huge fan following over the last 15–20 years. As of May 30, the dividend yield of the FTSE NAREIT All REITs Index was 3.97%, making it a clear winner against the 2.01% dividend yield by the S&P 500 as of that date. Here are three REIT stocks that hold a lot of promise.

3 REITs to Consider

Capstead Mortgage Corp. CMO: Based in Dallas, TX, it is a REIT for federal income tax purposes and manages a leveraged portfolio of residential mortgage pass-through securities. These securities, which entirely comprises of adjustable-rate mortgage (ARM), are issued and guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

Zacks Rank: #1 (Strong Buy)

Dividend Yield: 10.19%

Long-Term Growth Consensus Estimate: 10.0%

Hannon Armstrong Sustainable Infrastructure Capital, Inc. HASI: This Annapolis, MD-based REIT specializes in providing debt and equity financing for sustainable infrastructure projects such as Clean Energy Projects and Energy Efficiency Projects. It mainly serves commercial, utility, and industrial markets and; federal, state and local governments.

Zacks Rank: #2 (Buy)

Dividend Yield: 6.06%

Long-Term Growth Consensus Estimate: 10.0%

Ryman Hospitality Properties, Inc. RHP: Headquartered in Nashville, TN, this REIT deals in group-oriented, destination hotel properties positioned in urban and resort markets of the U.S. Alongside, it also manages several media and entertainment assets such as the Ryman Auditorium, WSM-AM and Grand Ole Opry.

Zacks Rank: #2 (Buy)

Dividend Yield: 4.64%

Long-Term Growth Consensus Estimate: 9.8%

In a Nutshell

REITs have, no doubt, endeavored to re-gain investors' confidence in the past 5 months with their better-than-expected performance. Most of the sector participants lead on the back of strong fundamentals amid improving economic conditions that promise a rise in occupancy levels, asking rent, total income and dividend rate. And as economic growth shows the REITs the path to prosperity, these deserve a round of applause from investors seeking value appreciation.