A A I I J o u r n A l S E P T E M B E R 2 0 2 1 2 3

A A I I . c o m / J o u r n A l

The First Cut is designed as a starting point, showing the top investments that pass relatively simple screens of interest to

individual investors.

F i r s t C u t : s t o C k s

The Stocks First Cut is designed as a starting point, showing the top stocks that pass relatively

simple screens of interest to individual investors.

Company Ticker

Price

(8/11)

($)

Div

Yield

(%)

Avg

Div

Yield

5-Yr

(%)

Div

Growth

12-Mo

(%)

Div

Growth

5-Yr

(%)

Payout

Rao

12-Mo

(%)

Sales

Growth

5-Yr

(%) Industry

Arbor Realty Trust Inc. ABR 18.70 7.5 8.8 9.2 16.5 50.1 33.5 REITs - Specialized

Gey Realty Corp. GTY 31.70 4.9 4.9 5.5 10.0 89.1 5.9 REITs - Commercial

Kilroy Realty Corp. KRC 67.15 3.0 2.3 2.3 6.9 35.0 9.1 REITs - Commercial

AvalonBay Communies Inc. AVB 222.20 2.9 3.0 3.4 5.1 82.4 4.4 REITs - Residenal

Hannon Armstrong Sustnbl Infrs HASI 58.08 2.4 5.9 1.9 5.4 93.5 26.1 REITs - Commercial

Extra Space Storage, Inc. EXR 173.42 2.3 3.6 5.6 10.0 78.1 11.6 REITs - Specialized

Alexandria Real Estate Equies ARE 204.55 2.2 4.5 5.8 7.0 66.4 17.5 REITs - Commercial

Duke Realty Corp. DRE 50.39 2.0 3.1 8.7 6.8 75.6 4.6 REITs - Commercial

First Industrial Realty Trust FR 54.47 2.0 3.1 8.3 14.4 57.4 4.1 REITs - Commercial

American Tower Corp. AMT 277.22 1.8 2.1 18.4 20.6 94.3 11.0 REITs - Specialized

Source: AAII Stock Investor Pro, Reﬁniv I/B/E/S and iShares. Data as of 8/11/2021.

10 REITs With Growing Dividends and Sales

(Ranked by Dividend Yield)

Real estate investment trusts (REITs) are a popular way

for investors to own income-generating real estate without

having to purchase or manage property. Many investors

like REITs for the income distributions. Unlike traditional

corporations, REITs must invest in real estate and distrib-

ute 90% of their taxable income.

Compared to private real estate investments, public

investments in equity REITs are more liquid, have a lower

minimum investment, have more limited liability (and

therefore less risk), offer the same protections as publicly

traded securities, provide easy access to active professional

management and require less hands-on work.

There are a couple of notable investment characteris-

tics that you can expect REITs to bring to your portfolio,

such as relatively high yields, stable earnings and income

(due to the long-term contractual nature of many leases

and rental agreements), capital appreciation and diversifi-

cation (historically, REITs have had a low correlation with

other assets).

We can construct a universe of equity REITs to invest

in using AAII’sStock Investor Pro. The fundamental stock

screening and research database program contains a field

under the Company Information category labeled “Indus-

try.” From it, we choose commercial, diversified, residen-

tial and specialized REITs. By simply requiring stocks to

be exchange-listed, have a stock price above $4 and have

a current yield greater than the market yield of 1.2%, we

start to build our universe of equity REIT stocks.

The key cash flow and profitability measures for ana-

lyzing an equity REIT are net operating income (NOI),

which measures the net cash generated by an income-

producing property, and funds from operations (FFO),

which measures cash flow from operations to assess a

REIT’s operating performance. AAII’s Stock Investor Pro

tracks traditional valuation metrics like the price-earnings

ratio and the price-to-free-cash-flow ratio, but net income

and earnings per share don’t translate well to REITs. The

AAII database does not include NOI or FFO, so many REIT-

specific valuation metrics can’t be calculated.

The next step is to narrow this list down to an invest-

able universe. We chose to focus on a growth-oriented

strategy. Specifically, we required stocks to have realized

annual revenue growth greater than 3% over the past five

years. This narrows the results to REITs that have been able

to increase annual rent rates or occupancy levels. We then

require high-quality, dividend-paying companies that

have continuously grown their dividends for at least three

consecutive years. A minimum dividend growth rate over

the past five years of 5% was also chosen to ensure that the

REITs have growth in excess of the rate of inflation. The

list of First Cut equity REIT stocks are shown in the table. ▪

—Derek J. Hageman, AAII financial analyst

Real Estate Investing Without Purchasing or Managing Property