If you want stocks that pay high dividends and also have the potential for market-beating long-term growth, retail real estate is one smart place to look. Despite the common misconception that retail is inherently risky, there are several retail REITs that deliver consistently strong results year after year. With that in mind, here are five of the best retail REITs in the market, all of which pay dividend yields over 4%.
Continue Reading Below
Chart is author's own. Share prices and dividend yields are current as of 3/10/17.
Image source: Getty Images.
Five excellent retail REITs for the long term
1. Realty Income
Realty Income (NYSE: O) primarily invests in freestanding retail properties which it leases to high-quality tenants on a net-lease basis. As of the end of 2016, Realty Income owns more than 4,900 properties, leased out to 248 different tenants, and located in 49 states plus Puerto Rico.
The company's tenants and lease structure make it an inherently defensive real estate investment. Most of the tenants are recession-resistant (drug stores, gas stations, dollar stores), are immune to e-commerce competition (fitness centers, movie theaters), or both. And the tenants sign long-term (15+ year) net leases that require them to cover most of the variable expenses of property ownership such as taxes, insurance, and maintenance. This business model has resulted in a consistently high occupancy rate, as well as dividends that have increased for 77 quarters in a row.
2. Simon Property Group
Mall REIT Simon Property Group (NYSE: SPG) is the largest REIT of any kind. It currently owns more than 200 mall properties with about 184 million square feet of space, including those operating under the "Premium Outlets" and "The Mills" brand names.
One of Simon's competitive advantages, aside from its size, is its willingness to continuously reinvest in its properties and adapt to the latest in consumer trends and preferences. For example, Simon's malls have amenities like electric vehicle charging stations and free Wi-Fi. In fact, there are redevelopment projects under way at about 15% of Simon's malls as I write this. And with $7 billion in available liquidity, the company has an advantage over peers when it comes to funds available for investment.
3. Kimco Realty
Kimco Realty (NYSE: KIM) owns over 500 shopping center properties with about 86 million rentable square feet. And with shopping center demand rising faster than new supply is being built, the dynamics are favorable for strong occupancy and pricing power for REITs.
While tenants in shopping centers can be somewhat riskier than say, freestanding net-lease retail tenants like Realty Income's, Kimco's strength is in its diversification. The company rents space to 4,100 separate tenants, none of which makes up more than 3.4% of the total rental revenue.
Tenants are on long-term leases with initial terms of 10 years or more, and Kimco deliberately fills a good portion of its properties with defensive businesses. For example, top tenants TJX Companies, Wal-Mart, and Dollar Tree actually tend to do better during tough times.
4. Tanger Factory Outlet Centers
Tanger Factory Outlet Centers (NYSE: SKT) arguably has the most well-known brand name out of the REITs on the list as it owns 44 outlet centers in 22 states and Canada.
Retailers who sell goods at deeply discounted prices like Tanger's tenants are resistant to e-commerce competition, and tend to weather recessions better than other types of retail businesses. As president and CEO Steven Tanger has said, "in good times people love a bargain, and in tough times people need a bargain."
Demand for outlet retail is high and growing, which is one reason Tanger's portfolio is 98% occupied, and has never had an occupancy rate below 95% for any year in the company's 24-year public history. And, outlet retail may still be in its infancy. Tanger says there is less than 70 million square feet of quality outlet space in the U.S. -- less than the size of the retail space in the city of Chicago.
5. National Retail Properties
National Retail Properties (NYSE: NNN) actually has a very similar business model to Realty Income, which you can read above. However, notice that I said Realty Income primarily invests in freestanding retail properties. In fact, about 20% of Realty Income's portfolio is made up of office and industrial properties.
On the other hand, National Retail Properties exclusively invests in high-quality freestanding retail, making it more of a pure play on the property type. The company owns more than 2,500 properties occupied by more than 400 different tenants. The company's net-lease business model delivers consistency and growth -- at the end of 2016, 99% of the company's properties were occupied.
The company has delivered market-beating returns for investors for more than two decades, and has increased its dividend for 27 consecutive years. With a rock-solid balance sheet and an investment-grade credit rating (BBB+/Baa1), National Retail Properties has the financial flexibility to take advantage of growth opportunities as they come up.
10 stocks we like better than Realty IncomeWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Realty Income wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017