Editor’s note: Thanks for reading Dividends Roundtable, formerly Dividends with Roger Conrad! To see my weekly posts on a regular basis, check out the links in this email and on the Substack application. You’ll also find information about Dividends Premium, featuring coverage of 84 real estate investment trusts.—RC
Buying low is essential to building real wealth consistently in stocks. Unfortunately, by the time most investors get interested in a stock or sector, it’s no longer a bargain. Upside is limited. And all too often, investors stay too long, giving up whatever gains they do make and more.
If you’ve been wondering where you were in 2020 when energy stocks were at cycle lows—or this spring when utility stocks were 30% below current levels—real estate investment trusts now offer a similar opportunity to build positions at bargain prices.
If you’re the kind of investor who chases performance, then chances are REITs aren’t going to look all that attractive to you. The Real Estate Select Sector SPDR (XLRE) has returned less than 6% year to date. And it’s actually underwater the last 12 months.
That compares to 15.2% for the S&P 500 so far in 2025, and 19.3% for the 12 months. The REIT ETF also lags the iShares Select Dividends ETF (DVY), used as a benchmark for dividend portfolios, by more than 2-to-1. And the Utilities Select Sector SPDR ETF (XLU) is beating the REIT ETF by nearly a 4-to-1 margin.
And if anything, XLRE understates REITs’ underperformance because of its heavy weighting in non-traditional companies like wireless tower operator American Tower (NYSE: AMT) and seniors facility owner Welltower Inc (NYSE: WELL). Some owners of office properties, for example, are down almost -75% so far in 2025. And leading apartment REIT AvalonBay Communities (NYSE: AVB) is underwater by double-digits, despite meeting earnings guidance and raising dividends.
But here are three reasons why REITs’ performance the next 12 months is likely to greatly exceed the last 12.
First, REITs are historically under-owned. All of them together are currently less than 1 percent of the S&P 500. That compares to 8.1% for a single stock, NVIDIA (NSDQ: NVDA).
There are obviously some pretty good reasons why NVIDIA has been a popular stock and strong performer up almost 40% the last 12 months. But nothing grows to the sky. And in addition to being the most heavily weighted S&P 500 stock in history, the iconic developer of GPUs needed for artificial intelligence now sells for 53.4 times earnings and 27 times sales. The stock is priced for perfection. Anything less and it’s vulnerable.
There’s no magic formula that says a stock this heavily weighted and expensive by any measure of business value has to drop. In fact, it’s entirely possible NVIDIA will come to be even more expensive and an even bigger piece of the S&P 500 in coming months.
But as my friend Lowell Miller has said—he’s the author of “The Single Best Investment” and founder of Miller Howard Investments—there’s no more reliable stock market trend that “reversion to the mean.” And in this case, getting back there means the S&P 500 and those ETFs that dominate Americans’ portfolios have to own a lot more REITs. That’s just to get back to any semblance of balance.
A second reason to buy REITs is they’re cheap, in fact many of the best in class are better bargains than they’ve been in decades. For the first time since the early 1990s, we’re seeing owners of offices, apartments, retail shopping centers and other property selling around book value. And some of the yields on my First Rate REIT list are as high as 13%, despite long records of robust growths.
Why are REITs so cheap? Because many investors right now are simultaneously concerned about the possibility of a recession and rising inflation keeping interest rates and therefore borrowing costs at elevated levels.
And that’s perfectly understandable. The Federal Reserve’s preferred measure of inflation is still well above the central bank’s target rate of 2%. And it’s been rising the past few months, as supply chain disruption triggered by tariffs has pushed up costs. Meanwhile, at the same time, gauges of employment have been weakening. And any delay in government data releases caused by the federal government shutdown are likely to worsen fears of stagflation as well.
Those are all headwinds for REITs. A slowing economy is always a threat to occupancy, rent growth and under extreme conditions collections as well. Meanwhile, gold prices pushing toward $4,000 an ounce are very clear sign investors’ inflation expectations are running hot. So is the fact that longer-term borrowing costs have actually risen for companies and consumers since the Federal Reserve but its Fed Funds rate by a quarter point last month.
Contrary to popular belief, the Fed does not set interest rates. If often has outsized influence on where borrowing costs go. But at the end of the day, the cost of debt capital is going to depend on the inflation expectations of lenders and investors. And if by cutting Fed Funds the Federal Reserve actually increases inflation expectations, borrowing costs will actually go higher.
Higher borrowing costs raise interest expense when REITs go to refinance maturing mortgages and other debt. They make it more expensive to build, which slows companies’ growth. And they often freeze the market for acquisitions.
Those factors have indeed slowed REITs’ growth this year, including the pace of dividend increases. But by focusing on the property sector’s current pain, investors are overlooking a major cyclical shift that’s about to make well-placed REITs far wealthier.
That basically stems from the fact that higher for longer interest rates from the Fed the past few years has slowed investment in new development to a crawl. Only the highest quality/return projects have been continued. The rest have been shelved at least until conditions markedly improve. And the result is emerging scarcity in a whole range of property types.
Consolidation and tightening supply have already worked their magic in the seniors housing sector. After suffering a combination of catastrophic losses of occupancy and rents as well as rising costs and reputational damage during the pandemic, a handful of financially strong giants rose to dominance. And they’re now seeing soaring occupancy and rents as well as strong shareholder returns. with Dividends Premium REITs recommendation Ventas Inc (NYSE: VTR) sitting on a year-to-date return of 21.1%.
Over the next 12 months, we should the same favorable trends trigger a sharp recovery for apartment owners, premium office properties and self-storage REITs. All three sectors have now absorbed the massive supply glut of the past few years, thanks to cost discipline and consolidation. And with little or no new supply coming on the market the next few years, a recovery in occupancy and rents looks set to trigger big boost in profitability and share prices.
It’s time to place some bets while the bargains still abound.Editor’s note: Thanks for reading Dividends Roundtable, formerly Dividends with Roger Conrad! To see my weekly posts on a regular basis, check out the links in this email and on the Substack application. You’ll also find information about Dividends Premium, featuring coverage of 84 real estate investment trusts.—RC
Buying low is essential to building real wealth consistently in stocks. Unfortunately, by the time most investors get interested in a stock or sector, it’s no longer a bargain. Upside is limited. And all too often, investors stay too long, giving up whatever gains they do make and more.
If you’ve been wondering where you were in 2020 when energy stocks were at cycle lows—or this spring when utility stocks were 30% below current levels—real estate investment trusts now offer a similar opportunity to build positions at bargain prices.
If you’re the kind of investor who chases performance, then chances are REITs aren’t going to look all that attractive to you. The Real Estate Select Sector SPDR (XLRE) has returned less than 6% year to date. And it’s actually underwater the last 12 months.
That compares to 15.2% for the S&P 500 so far in 2025, and 19.3% for the 12 months. The REIT ETF also lags the iShares Select Dividends ETF (DVY), used as a benchmark for dividend portfolios, by more than 2-to-1. And the Utilities Select Sector SPDR ETF (XLU) is beating the REIT ETF by nearly a 4-to-1 margin.
And if anything, XLRE understates REITs’ underperformance because of its heavy weighting in non-traditional companies like wireless tower operator American Tower (NYSE: AMT) and seniors facility owner Welltower Inc (NYSE: WELL). Some owners of office properties, for example, are down almost -75% so far in 2025. And leading apartment REIT AvalonBay Communities (NYSE: AVB) is underwater by double-digits, despite meeting earnings guidance and raising dividends.
But here are three reasons why REITs’ performance the next 12 months is likely to greatly exceed the last 12.
First, REITs are historically under-owned. All of them together are currently less than 1 percent of the S&P 500. That compares to 8.1% for a single stock, NVIDIA (NSDQ: NVDA).
There are obviously some pretty good reasons why NVIDIA has been a popular stock and strong performer up almost 40% the last 12 months. But nothing grows to the sky. And in addition to being the most heavily weighted S&P 500 stock in history, the iconic developer of GPUs needed for artificial intelligence now sells for 53.4 times earnings and 27 times sales. The stock is priced for perfection. Anything less and it’s vulnerable.
There’s no magic formula that says a stock this heavily weighted and expensive by any measure of business value has to drop. In fact, it’s entirely possible NVIDIA will come to be even more expensive and an even bigger piece of the S&P 500 in coming months.
But as my friend Lowell Miller has said—he’s the author of “The Single Best Investment” and founder of Miller Howard Investments—there’s no more reliable stock market trend that “reversion to the mean.” And in this case, getting back there means the S&P 500 and those ETFs that dominate Americans’ portfolios have to own a lot more REITs. That’s just to get back to any semblance of balance.
A second reason to buy REITs is they’re cheap, in fact many of the best in class are better bargains than they’ve been in decades. For the first time since the early 1990s, we’re seeing owners of offices, apartments, retail shopping centers and other property selling around book value. And some of the yields on my First Rate REIT list are as high as 13%, despite long records of robust growths.
Why are REITs so cheap? Because many investors right now are simultaneously concerned about the possibility of a recession and rising inflation keeping interest rates and therefore borrowing costs at elevated levels.
And that’s perfectly understandable. The Federal Reserve’s preferred measure of inflation is still well above the central bank’s target rate of 2%. And it’s been rising the past few months, as supply chain disruption triggered by tariffs has pushed up costs. Meanwhile, at the same time, gauges of employment have been weakening. And any delay in government data releases caused by the federal government shutdown are likely to worsen fears of stagflation as well.
Those are all headwinds for REITs. A slowing economy is always a threat to occupancy, rent growth and under extreme conditions collections as well. Meanwhile, gold prices pushing toward $4,000 an ounce are very clear sign investors’ inflation expectations are running hot. So is the fact that longer-term borrowing costs have actually risen for companies and consumers since the Federal Reserve but its Fed Funds rate by a quarter point last month.
Contrary to popular belief, the Fed does not set interest rates. If often has outsized influence on where borrowing costs go. But at the end of the day, the cost of debt capital is going to depend on the inflation expectations of lenders and investors. And if by cutting Fed Funds the Federal Reserve actually increases inflation expectations, borrowing costs will actually go higher.
Higher borrowing costs raise interest expense when REITs go to refinance maturing mortgages and other debt. They make it more expensive to build, which slows companies’ growth. And they often freeze the market for acquisitions.
Those factors have indeed slowed REITs’ growth this year, including the pace of dividend increases. But by focusing on the property sector’s current pain, investors are overlooking a major cyclical shift that’s about to make well-placed REITs far wealthier.
That basically stems from the fact that higher for longer interest rates from the Fed the past few years has slowed investment in new development to a crawl. Only the highest quality/return projects have been continued. The rest have been shelved at least until conditions markedly improve. And the result is emerging scarcity in a whole range of property types.
Consolidation and tightening supply have already worked their magic in the seniors housing sector. After suffering a combination of catastrophic losses of occupancy and rents as well as rising costs and reputational damage during the pandemic, a handful of financially strong giants rose to dominance. And they’re now seeing soaring occupancy and rents as well as strong shareholder returns. with Dividends Premium REITs recommendation Ventas Inc (NYSE: VTR) sitting on a year-to-date return of 21.1%.
Over the next 12 months, we should the same favorable trends trigger a sharp recovery for apartment owners, premium office properties and self-storage REITs. All three sectors have now absorbed the massive supply glut of the past few years, thanks to cost discipline and consolidation. And with little or no new supply coming on the market the next few years, a recovery in occupancy and rents looks set to trigger big boost in profitability and share prices.
It’s time to place some bets while the bargains still abound.
nice general overview, but where is the link to actual recommendations and max buy prices? That's what we really want.