REIT Stocks: Should You Buy the Dip?

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Real Estate Investment Trusts (REITs) are favored by income investors for their dividend-yielding nature. However, not all REITs are worth considering, as some have faced significant challenges, earning them “F” ratings. This article highlights several REITs with struggles that investors should be cautious about.

Unique Appeal of REITs

REITs offer income investors unique advantages. They are not subject to federal corporate income tax if they distribute at least 90% of their taxable income to shareholders as dividends. This structure appeals to those seeking a consistent income stream.

Impact of Economic Factors

REIT performance can be influenced by economic factors. For instance, the rise of remote work could impact office REITs negatively. Similarly, residential REITs can be affected by consumer confidence and affordability factors.

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Notable REITs to Avoid

  1. Extra Space Storage (EXR): Despite being the largest storage operator in the U.S., EXR offers a yield below 2% and has seen its stock decline nearly 14% this year. Second-quarter earnings also disappointed, earning it an “F” rating.
  2. Gladstone Commercial Corporation (GOOD): GOOD specializes in single-tenant and anchored multi-tenant industrial and office properties. Its stock is down 28% this year, and despite a 9% dividend yield, it receives an “F” rating.
  3. Medical Properties Trust (MPW): MPW is a major player in medical and hospital REITs, with properties in 10 countries. However, it has seen a significant decline of over 40% this year, and a dividend cut to build cash hurt its reputation, resulting in an “F” rating.
  4. Crown Castle (CCI): As a telecom REIT, CCI owns numerous cell towers, but headwinds in the telecom industry and concerns over lead-covered cables have caused its stock to fall by 27%. An “F” rating reflects its current challenges.
  5. Power REIT (PW): Unlike its name suggests, PW is involved in sustainable real estate, owning greenhouses and solar farmland. It has seen a steep 65% stock decline this year and does not pay dividends, earning it an “F” rating.
  6. Agree Realty (ADC): ADC focuses on retail properties, with a monthly dividend payout. However, the retail sector faces headwinds, and rising interest rates could impact its performance. Despite a 4.8% yield, ADC receives an “F” rating.
  7. Ashford Hospitality Trust (AHT): AHT specializes in hotels and hospitality, which suffered during the pandemic. The company returned hotels to lenders and hasn’t paid dividends since January 2020. With a 32% stock decline in 2023, it earns an “F” rating.
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Investors should exercise caution when considering these REITs, as their challenges have resulted in “F” ratings. While high yields may be enticing, it’s essential to weigh the risks associated with each REIT and explore alternatives for more promising investments.