5 Retail REITs to Buy with the Highest Dividend Yields

NEW YORK (TheStreet) -- Real estate investment trusts that specifically invest in the retail sector have been challenged -- to say the least -- not only from lower overall consumer spending of late, but online shopping continues to threaten brick-and-mortar stores. Yet, there are still sound investments in the retail REIT sector.

Retail REITs invest in shopping centers, malls, convenience stores and retail chains.

Investors generally like REITs for their strong dividend income, among other factors, as REITs are required to pay out at least 90% of their income in the form of dividends to investors each year.

One potential boost to the retail REIT sector is the transformation of stores as separate from their online counterparts. It's a growing strategy called omni-channel shopping and combines both online and in-store experiences to allow the customer to purchase how and when she wants. Retail chains like Apple (AAPL) and Macy's (M) are forging ahead with so-called omni-channel shopping strategies, and that could benefit retail REITs, wrote Bank of America Merrill Lynch analyst Jeffrey Spector in a note to clients in December.

"For retail REITs with dominant assets, omni-channel retailing has created significant demand for flagship stores helping these landlords push rents. We expect this to continue in 2015, as BofAML's retail team believes we are entering the next phase, with retailers optimizing omni-channel efforts," the note said.

So, which ones should investors add to their portfolios? Here's five to consider. The stocks on this list are all buy-rated stocks in the Retail REITs sub-industry. And when you're done be sure to check out the nine office REITs to buy.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Note: Year-to-date returns are based on June 2, 2015 closing prices.

ADC Chart ADC data by YCharts

1. Agree Realty Corp. (ADC)
Market Cap: $530 million
Annual Dividend Yield: 5.88%

Year-to-date return: -1.9%

Agree Realty Corporation, a real estate investment trust (REIT), engages in the ownership, development, acquisition, and management of retail properties, which are primarily leased to national and regional retail companies in the United States.

TheStreet Ratings: Buy, B
TheStreet Ratings said: "We rate AGREE REALTY CORP (ADC) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, good cash flow from operations, increase in net income and growth in earnings per share. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 25.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for AGREE REALTY CORP is rather high; currently it is at 57.72%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 40.44% significantly outperformed against the industry average.
  • Net operating cash flow has increased to $9.01 million or 10.23% when compared to the same quarter last year. In addition, AGREE REALTY CORP has also modestly surpassed the industry average cash flow growth rate of 0.73%.
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 18.3% when compared to the same quarter one year prior, going from $5.38 million to $6.37 million.
  • AGREE REALTY CORP's earnings per share improvement from the most recent quarter was slightly positive. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AGREE REALTY CORP reported lower earnings of $1.23 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($1.54 versus $1.23).

 

 

GTY Chart GTY data by YCharts

2. Getty Realty Corp. (GTY)
Market Cap: $569 million
Annual Dividend Yield: 5.13%

Year-to-date return: -6.5%

Getty Realty Corp. operates as a real estate investment trust (REIT) in the United States. The company engages in the ownership and leasing of retail motor fuel and convenience store properties, and petroleum distribution terminals.

TheStreet Ratings: Buy, B
TheStreet Ratings said: "We rate GETTY REALTY CORP (GTY) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Among the primary strengths of the company is its revenue growth. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 0.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • GETTY REALTY CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, GETTY REALTY CORP reported lower earnings of $0.60 versus $0.81 in the prior year. This year, the market expects an improvement in earnings ($1.08 versus $0.60).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income has significantly decreased by 111.8% when compared to the same quarter one year ago, falling from $9.62 million to -$1.14 million.
  • The share price of GETTY REALTY CORP has not done very well: it is down 13.04% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, GETTY REALTY CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.

 

UBA Chart UBA data by YCharts

3. Urstadt Biddle Properties (UBA)
Market Cap: $694 million
Annual Dividend Yield: 5%

Year-to-date return: -7.4%

Urstadt Biddle Properties Inc. is a real estate investment trust. The firm invests in the real estate markets of the United States. It engages in the ownership, operation, and redevelopment of high quality retail shopping centers predominantly located in the suburban, high demographic, high barrier to entry communities surrounding New York City.

TheStreet Ratings: Buy, B
TheStreet Ratings said: "We rate URSTADT BIDDLE PROPERTIES (UBA) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • UBA's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 13.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market, URSTADT BIDDLE PROPERTIES's return on equity is below that of both the industry average and the S&P 500.
  • URSTADT BIDDLE PROPERTIES's earnings per share declined by 40.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, URSTADT BIDDLE PROPERTIES increased its bottom line by earning $1.15 versus $0.30 in the prior year. For the next year, the market is expecting a contraction of 49.6% in earnings ($0.58 versus $1.15).
  • In its most recent trading session, UBA has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

 

O Chart O data by YCharts

4. Realty Income Corp. (O)
Market Cap: $10.7 billion
Annual Dividend Yield: 4.93%

Year-to-date return: -4%

Realty Income Corporation is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. Realty Income Corporation was founded in 1969 and is based in Escondido, California.

TheStreet Ratings: Buy, B+
TheStreet Ratings said: "We rate REALTY INCOME CORP (O) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, compelling growth in net income and increase in stock price during the past year. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • O's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 11.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 48.57% is the gross profit margin for REALTY INCOME CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 27.24% is above that of the industry average.
  • Net operating cash flow has slightly increased to $117.85 million or 3.20% when compared to the same quarter last year. In addition, REALTY INCOME CORP has also modestly surpassed the industry average cash flow growth rate of 0.73%.
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 16.6% when compared to the same quarter one year prior, going from $57.66 million to $67.26 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

 

NNN Chart NNN data by YCharts

5. National Retail Properties Inc. (NNN)
Market Cap: $5 billion
Annual Dividend Yield: 4.43%

Year-to-date return: -4.9%

National Retail Properties, Inc. is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States.

TheStreet Ratings: Buy, B+
TheStreet Ratings said: "We rate NATIONAL RETAIL PROPERTIES (NNN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NNN's revenue growth has slightly outpaced the industry average of 8.5%. Since the same quarter one year prior, revenues rose by 11.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • NATIONAL RETAIL PROPERTIES has improved earnings per share by 21.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NATIONAL RETAIL PROPERTIES increased its bottom line by earning $1.24 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $1.24).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Real Estate Investment Trusts (REITs) industry average. The net income increased by 24.6% when compared to the same quarter one year prior, going from $43.33 million to $53.98 million.
  • Net operating cash flow has increased to $97.14 million or 23.57% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 0.73%.

 

 

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