As a group the REIT sector has been red hot. Since a moderate correction in September 2014, the major REIT ETFs are up about 20%. For many REITs, the prices have gotten too rich, making attractive investments more difficult to find. However, there is a subcategory in the sector that is loaded with great companies increasing their dividends rapidly that would be great additions to every income portfolio.
Comparing price gains, current yields and dividend growth rates, I see more potential for a correction in the REIT sector compared to continued share price growth which could lead to better entry prices in these four stocks. In the February issue of The Dividend Hunter newsletter, I recommended that subscribers sell a very high quality REIT. Even though the company is great, the yield had dropped to 3.8% compared 4.6% in mid-2014. That is too low a yield for an 8% dividend growth rate. Overall, it’s tough to find good value in the REIT sector, but these four stocks are great candidates for investors looking for dividend growth stocks.
The lodging sub-sector of commercial real estate where higher share prices are justified by excellent revenue and dividend growth. The lodging/hotel REITs are currently in a perfect financial storm to generate high levels of revenue and profit growth. Here is an outline of factors in play:
- While overall economic growth can be described as moderate, that growth is enough to generate significantly growing business on vacation travel. The result is increasing demand for hotel rooms.
- New hotel construction remains sluggish. The financial crisis aftermath continues to make companies leery of committing to new hotel construction.
- The combination of demand growth with lagging supply growth is allowing hotel operators to increase both occupancy and daily room rates.
- The low interest rate environment allows sharp hotel operators to invest capital and increase their internal growth rates through hotel renovations or the acquisition of less well-run properties.
