3 Best Undervalued REIT Dividend Stocks With Over 6% Yield

REIT stocks have experienced volatility over the past several months amid higher interest rates and headwinds in the broader real estate market. There's also a common misconception that REITs underperform whenever interest rates are high. An analysis from S&P Global shows otherwise. The firm's report said in four of the six high-interest rate periods from 1976 through 2006, REITs posted positive total returns and outperformed the S&P 500 in half of those periods. Raymond Mathis, Standard & Poor’s REIT equity analyst, was also quoted as saying that REITs have outperformed the broader market over the past three years and posted positive total returns each year during the period. High dividends and easy access to the lucrative real estate market have always attracted long-term REIT investors. 

Since investors mostly flock to REIT stocks for their juicy dividends, we decided to examine some high-yield REIT dividend stocks that are trading at a bargain today and have long-term growth catalysts. We preferred REITs with over 6% dividend yield and low forward P/E (compared with the REIT industry median of 43).

Apple Hospitality REIT

Virginia-based hotels REIT Apple Hospitality REIT Inc APLE is a monthly dividend stock with over a 6% dividend yield. Last month, the company reported first quarter earnings which met Wall Street estimates. FFO in the period came in at $0.34, while revenue jumped 5.8% year over year to $329.51 million, surpassing estimates by $2.16 million. The stock is, however, down 13% in 2024 so far amid headwinds in the hotels REIT industry as consumers cut back on spending due to high inflation. Apple Hospitality has over 220 hotels in its portfolio and stands out in the industry because of its high liquidity and low debt. The company's debt/EBITDA ratio of 3.55 is better than over 80% of the companies in the REIT industry. Apple Hospitality is also increasing its footprint via acquisitions. During the first quarter, the company bought the AC Hotel by Marriott Washington DC Convention Center for about $116.8 million. The company also said it holds two hotels under contract for purchase — Embassy Suites by Hilton (for about $79.3 million) and Motto by Hilton (for about $98.2 million). Analysts expect discretionary consumer spending to recover in the coming months following expected rate cuts from the Federal Reserve, which would bode well for hotel REITs like Apple Hospitality. The stock's forward P/E ratio of 15.50 is well below the REIT industry's median forward P/E of 43.

Trending: If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it?

Starwood Property Trust

Starwood Property Trust Inc STWD is a Connecticut-based REIT focusing on commercial mortgage loans and equity investments. With an over 10% dividend yield and a forward P/E of 8.8 as of June 28, Starwood is a notable undervalued high-yield REIT dividend stock. Starwood Property is positioned well to offset volatility in the real estate market thanks to its diversified portfolio. Offices, a volatile segment of the industry, account for just 11% of its assets, while commercial and residential lending makes up a major chunk of the company's business (69% of assets), in addition to infrastructure lending and servicing. The stock's valuation is depressed in part due to the announcement from Starwood Capital to limit redemptions of its non-traded $10 billion Starwood Real Estate Income Trust property fund to avoid asset sales and conserve liquidity. Starwood Property bulls believe the non-traded REIT's redemptions limits should not be a concern for Starwood Property investors since it's a publicly traded REIT with strong liquidity. 

During the first quarter, the company earned $191.6 million in distributable earnings, a 1% growth over the previous quarter. Distributable earnings per share during the quarter came in at $0.59, while the company pays a dividend of $0.48 per share. This translates into a payout ratio of 81%, more than enough to cover the dividend.

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Gaming and Leisure Properties 

Pennsylvania-based REIT Gaming and Leisure Properties Inc GLPI focuses on casinos and gaming facilities. The stock has a 6.7% dividend yield and a forward P/E of 13.46 as of June 28. It's one of the most geographically diversified gaming REITs with 65 facilities across 20 states. The company is known for its strong leasing contracts, with most of its current leases having renewals due not before 2030 — 2040. Last month, the company bought the real estate assets of Silverado Franklin Hotel & Gaming Complex, the Deadwood Mountain Grand Casino, and Baldini's Casino for a combined value of $105 million.

Gaming and Leisure Properties' moat in the industry is wide and strong, given the high barrier to entry into the gaming market amid regulations. The company's occupancy rate of 100% also beats the S&P 500 REIT’s historical median occupancy rate of 94.8%. Analysts believe expected rate cuts from the Federal Reserve could boost gaming and casino activity in the U.S. due to a rise in disposable income, helping gaming REIT stocks like Gaming and Leisure Properties.

Looking For Higher-Yield Opportunities?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through dividend stocks… Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider. 

For example, the Jeff Bezos-backed investment platform just launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

Don't miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga's favorite high-yield offerings. 

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