Realty Income: A Healthy Total Return Opportunity
Realty Income, one of the most well-known REITs, is expected to generate adjusted funds from operations (AFFO) between $4.15 and $4.21 per share this year. Trading under $60 per share, the REIT is valued at just around 14.5 times earnings, a much lower multiple than the S&P 500, which explains Realty Income’s high dividend yield of over 5%—significantly higher than the S&P 500’s average yield of less than 1.5%.
As a diversified REIT with exposure to industrial, retail, gaming, and other property types, Realty Income has shown solid growth. Its AFFO per share grew by 6% in Q2, driven by rent increases and acquisitions, including a major $9.3 billion merger with fellow REIT Spirit Realty. This growth has enabled Realty Income to raise its dividend by 1.6% year-over-year in Q2.
Realty Income aims to sustain its growth trajectory. Management believes it can grow AFFO per share by 4% to 5% annually through rent escalations and additional acquisitions, allowing it to continue increasing dividends. Since going public in 1994, Realty Income has raised its dividend 127 times. With a high-yield dividend, consistent growth, and a bargain valuation, Realty Income stands out as a potential investment offering strong total returns.
Rexford Industrial: Capitalizing on a Hot Industrial Market
Rexford Industrial is another REIT trading at a favorable valuation. The company is projected to produce core FFO between $2.33 and $2.35 per share this year. With shares trading above $40, Rexford Industrial has a price-to-FFO ratio under 17.5, which is low for a REIT with its growth profile. The attractive valuation contributes to Rexford’s current yield of around 4%.
Focused on Southern California’s industrial market, Rexford reported strong Q3 growth, with core FFO rising 13.1% and per-share growth of 5.4% from recent acquisitions. Southern California’s high demand for industrial space and limited supply helped drive a 39.2% increase in rental rates for new leases and renewals during the quarter. This has led Rexford to invest $1.4 billion in new properties this year alone.
Rexford Industrial expects rapid growth to continue. The REIT anticipates higher rents and captures additional market rates on lease expirations, driving NOI growth by 34% by Q3 2027. The REIT has a conservative balance sheet, providing significant financial flexibility to fuel future acquisitions.
With a clear growth outlook, Rexford Industrial should be able to sustain its dividend increases. Over the past five years, Rexford’s dividend has grown at an 18% annualized rate, far outpacing the industry average of 11%. This industrial REIT offers investors an appealing mix of income and growth potential at an attractive valuation, making it a compelling buy.
Affordable REITs with Income and Growth Potential
Realty Income and Rexford Industrial are trading at discounted valuations relative to the broader market, a primary reason for their elevated dividend yields. With strong growth drivers in place, these REITs present a compelling opportunity for investors seeking both income and capital appreciation potential.