After having outpaced broader market indices for the better part of 2016, real estate investment trusts have cooled off.
The REIT sector is nearly 14% below its 52-week high in August. Yet the pullback offers a great time to buy. "REITs are on the cheap side -- not pound-the-table inexpensive but on the attractive side of fair value," says Mike Kirby, research director at Green Street Advisors, a real estate research firm in Newport Beach, Calif.
Given the decline in share prices of many REITs, investors can find juicy dividend yields.
Citigroup REIT analysts recently wrote, "While there is undoubtedly deceleration in fundamentals in most sectors after five years of above-average growth, the REIT sector is in its best shape from a balance-sheet, portfolio, and operations perspective in its history."
Kirby said that the industry's adjusted funds from operations (AFFO) will rise by as much as 6.3% by the end of this year, and an additional 7% in both 2017 and 2018.
Among the best buying opportunities are Equity Residential, Macerich, Simon Property Group and Public Storage (PSA) . They all either trading at or near 52-week lows and offer solid dividends.
Public Storage is particularly promising. Its shares have dropped 21% from their previous peak. Yet the REIT's properties offer services that are in high demand in good economic times and bad, and its financial performance has been solid. Its occupancy rate is more than 95%. Same-store revenue grew nearly 6% over the first nine months of the year.
Public Storage's dividend is a robust 3.7%, so even if the share price languishes, it will generate healthy income.