5 REIT Stocks To Add As Federal Reserve Keeps Rate Unchanged

Drop in inflation expectations, global economic growth concerns and prevalent trade tensions are compelling investors to look for safer havens, particularly toward the security of the government bonds, pushing up debt prices and resulting in the fall of bond yields. Also, for the first time since late 2016, the 10-year treasury yields slipped below 2% after Fed chairman Powell held interest rates steady, but kept its options open for any cuts later this year.

President Trump has been keeping the central bank under persistent pressure for lowering of interest rates. However, this time, the Fed kept the benchmark rate unchanged, and dropped the word “patient” in discussing its attitude toward policy, instead. The central bank also pointed out that while on an average, job gains have been solid, economic activity is increasing at a moderate pace.

Moreover, though household spending seems to have picked up pace in recent months compared to the beginning of the year, business fixed investment indicators have been “soft”. Additionally, with inflation still lagging behind the Fed’s target level, the committee has decided to closely monitor the economic situation and make prudent moves for economic expansion.

Further, the argument in favor of an accommodative policy has gathered steam. This is indicated by eight of the 17 members preferring a rate cut this year, while an equal number voting in favor of retaining it, and the other member preferring a hike.

The current scenario brings back interest-sensitive REITs to the limelight, as these are often treated as bond substitutes for their high-dividend paying nature. Particularly, government regulations mandate REITs to disburse at least 90% of their taxable income in the form of dividends to shareholders each year. In addition, dependence of REITs on debt for their business keeps investors optimistic about their performance in case of a rate cut.

These apart, underlying fundamentals of a number of asset categories in the REIT sector have been displaying strength. The occupancy levels of properties are hovering near the record-high marks — indicating solid demand as well as scope for generating steady revenues.

Stocks to Consider

Therefore, backtracking to the REITs and scouting for stocks with better fundamentals and dividend seems an apt choice. We have handpicked stocks based on a favorable Zacks Rank, high dividend yield and other relevant metrics.

Headquartered in Boca Raton, FL, The GEO Group (NYSE:GEO) is an equity REIT that specializes in the design, development, financing and operation of correctional, detention and community reentry facilities. It has operations in the United States, Australia, South Africa and the U.K. The GEO Group currently flaunts a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. Also, the Zacks Consensus Estimate for its 2019 FFO per share moved 35.4% north in two months’ time. In addition to this, the stock has a dividend yield of 8.06%.

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Arbor Realty Trust (NYSE:ABR) , based in Uniondale, NY, invests in real estate-related bridge and mezzanine loans, preferred equity, mortgage-related securities and other real estate-related assets. Currently, Arbor Realty Trust sports a Zacks Rank #1 and has a VGM Score of B. The Zacks Consensus Estimate for the current-year FFO per share moved up 5.1% over the last 60 days. The stock has a dividend yield of 9.02%. You can see Zacks Investment Research

Written By: Zacks Investment Research