Published by Forbes.com | October 5, 2023
REITs are dividend-paying entities that own or finance real estate. Learn what REITs are, and the best ones to invest in right now.
What’s on tap for the stock market in 2023? Even halfway through the first quarter, there isn’t a strong indication which direction markets will go. The best we can say is that uncertainty will be the theme.
That uncertainty may play well for real estate investment trusts (REITs), which own and finance real estate. They make money through rents, property sales, interest income. Most also pay their shareholders generous cash investment income.
Read on to find out why 2023 may be a good year for REIT, which REITs are paying big dividends and how to choose reliable REITs for your own portfolio.
Outlook For REITs
The last year has not been good to REITs. As of February 15, 2023, the S&P U.S. REIT index was down more than 11% over the prior 12 months. By comparison, the S&P 500 dipped only 7.2% in the same time frame. There is some positive news: year to date the S&P U.S. REIT index is outperforming the S&P 500.
Strong Balance Sheets, Low Stock Prices
While interest rates may rise in 2023, the pace is likely to be slower than what we saw in 2022.
And, as advocacy group Nareit reports, REITs have historically low leverage in terms of debt-to-market-assets. They also hold a good measure of fixed-rate debt, which is unaffected by interest rate hikes—at least until that debt must be refinanced. Fortunately, as of the third quarter of 2022, REITs collectively had a weighted average term to maturity of more than seven years.
Investment manager Hazelview Investments sees upside for REITs this year. Not only because their balance sheets are strong, but also because their valuations are low. Investor sentiment drove the 2022 decline for REITs, more so than business results. That positions high quality REITs for a comeback this year.
Potential For Recession
Fitch’s REIT outlook, however, is more tempered. The credit ratings agency predicts that recessionary conditions, higher capital costs, and waning demand in some sectors will keep REITs from outperforming in 2023.
