Insights

2 Income REITs to Buy in May

Surging inflation and a hawkish tone from the Federal Reserve have financial markets worried that a recession could be on the way. This is why the S&P 500 index has slumped more than 12% through the first four months of 2022. For context, this is the worst start to a year since 1939.
But income investors can sleep well at night owning quality real estate investment trusts (REITs). REITs are required to pay 90% of their net income to shareholders via dividends. This explains why the 2.7% average REIT dividend yield is nearly double the S&P 500’s 1.5%. Here are two REITs to consider buying in May that pay sustainable 3.5%-plus dividend yields to their shareholders.
Image source: Getty Images.

1. Digital Realty Trust
Digital Realty Trust (NYSE: DLR) is the first income REIT to think about purchasing this month. The stock boasts a market-topping 3.5% dividend yield. With a market capitalization of $41 billion and 285-plus data centers in 26 countries, Digital Realty is the second-largest data center REIT in the world behind Equinix at a $64 billion market cap.
Digital Realty’s strength in the data center REIT industry has allowed it to post 10% annual growth in its core funds from operations (FFO) per share since 2005. And although the company’s growth has slowed to the mid-single digits annually in recent years, there’s reason to believe Digital Realty will grow much larger in the years ahead.
Thanks to increasing investment in data centers and an expected uptick in the penetration rate of technologies like virtual reality, the future appears to be bright for the global data center industry. This explains why it’s predicted that the global data-center market is forecast to grow at 5% each year from $215.8 billion in 2021 to $288.3 billion by 2027.
Built-in annual cash rent increases and growing demand for data centers should translate into decent core FFO per share growth for Digital Realty. And with a dividend payout ratio of around 71% for this year, the company is retaining enough capital to fund future growth.
Best of all, Digital Realty’s $142 share price means investors can pick up shares at a forward price-to-core-FFO-per-share ratio of about 21. This is hardly a steep valuation for the stock’s quality and growth prospects.
2. Vici Properties
Vici Properties (NYSE: VICI) is the second income REIT to contemplate scooping up in May. The stock offers income investors a market-smashing 5% dividend yield. 
Vici Properties’ $22 billion market cap makes it the largest gaming REIT in the world. Unsurprisingly, the company owns 43 of the most well-known casino properties in the world, like Caesars Palace Las Vegas, Mandalay Bay, and the MGM Grand.
The brand power of these properties allows Vici Properties’ portfolio to maintain a 100% occupancy rate. It also explains how the stock has generated a 10.7% annual adjusted FFO (AFFO)-per-share growth rate over the last three years.
And due to its 72.4% dividend payout ratio in 2021, the stock is keeping enough of its adjusted funds from operations to finance future acquisitions and developments. This should help to sustain high-single-digit annual AFFO per share and dividend growth over the medium term, which is quite attractive paired with Vici Properties’ high starting yield.
The cherry on top for income investors is that the stock appears to be cheap at a forward price-to-AFFO-per-share ratio of about 16. This is why analysts expect Vici Properties’ stock to soar over the next 12 months.
Kody Kester has positions in Digital Realty Trust and VICI Properties Inc. The Motley Fool has positions in and recommends Digital Realty Trust and Equinix. The Motley Fool has a disclosure policy. –

Surging inflation and a hawkish tone from the Federal Reserve have financial markets worried that a recession could be on the way. This is why the S&P 500 index has slumped more than 12% through the first four months of 2022. For context, this is the worst start to a year since 1939.

But income investors can sleep well at night owning quality real estate investment trusts (REITs). REITs are required to pay 90% of their net income to shareholders via dividends. This explains why the 2.7% average REIT dividend yield is nearly double the S&P 500’s 1.5%. Here are two REITs to consider buying in May that pay sustainable 3.5%-plus dividend yields to their shareholders.

Image source: Getty Images.

1. Digital Realty Trust

Digital Realty Trust (NYSE: DLR) is the first income REIT to think about purchasing this month. The stock boasts a market-topping 3.5% dividend yield. With a market capitalization of $41 billion and 285-plus data centers in 26 countries, Digital Realty is the second-largest data center REIT in the world behind Equinix at a $64 billion market cap.

Digital Realty’s strength in the data center REIT industry has allowed it to post 10% annual growth in its core funds from operations (FFO) per share since 2005. And although the company’s growth has slowed to the mid-single digits annually in recent years, there’s reason to believe Digital Realty will grow much larger in the years ahead.

Thanks to increasing investment in data centers and an expected uptick in the penetration rate of technologies like virtual reality, the future appears to be bright for the global data center industry. This explains why it’s predicted that the global data-center market is forecast to grow at 5% each year from $215.8 billion in 2021 to $288.3 billion by 2027.

Built-in annual cash rent increases and growing demand for data centers should translate into decent core FFO per share growth for Digital Realty. And with a dividend payout ratio of around 71% for this year, the company is retaining enough capital to fund future growth.

Best of all, Digital Realty’s $142 share price means investors can pick up shares at a forward price-to-core-FFO-per-share ratio of about 21. This is hardly a steep valuation for the stock’s quality and growth prospects.

2. Vici Properties

Vici Properties (NYSE: VICI) is the second income REIT to contemplate scooping up in May. The stock offers income investors a market-smashing 5% dividend yield. 

Vici Properties’ $22 billion market cap makes it the largest gaming REIT in the world. Unsurprisingly, the company owns 43 of the most well-known casino properties in the world, like Caesars Palace Las Vegas, Mandalay Bay, and the MGM Grand.

The brand power of these properties allows Vici Properties’ portfolio to maintain a 100% occupancy rate. It also explains how the stock has generated a 10.7% annual adjusted FFO (AFFO)-per-share growth rate over the last three years.

And due to its 72.4% dividend payout ratio in 2021, the stock is keeping enough of its adjusted funds from operations to finance future acquisitions and developments. This should help to sustain high-single-digit annual AFFO per share and dividend growth over the medium term, which is quite attractive paired with Vici Properties’ high starting yield.

The cherry on top for income investors is that the stock appears to be cheap at a forward price-to-AFFO-per-share ratio of about 16. This is why analysts expect Vici Properties’ stock to soar over the next 12 months.

Kody Kester has positions in Digital Realty Trust and VICI Properties Inc. The Motley Fool has positions in and recommends Digital Realty Trust and Equinix. The Motley Fool has a disclosure policy.

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