As the S&P 500 continues its retreat from record highs, investors seeking solid dividend income may want to take a closer look at some carefully selected real estate investment trusts. In 2025, the real estate sector has largely changed, breaking the double-digit decline in information technology and consumer discretion sector. “I think real estate is showing up as a bright spot as a bright spot as the Treasury yields have fallen over the past 10 years,” Kevin Brown, senior equity analyst at Morningstar, told CNBC. “The real estate sector outperformed when prices fell. When they rose, the sector performed poorly against the S&P 500.” In fact, benchmark yields were around 4.8% in January, but were trading at around 4.27% on Thursday. Real estate investment trusts are particularly sensitive to interest rates as they increase the borrowing costs of REITs and reduce their appeal to income investors, compared to the Ministry of Treasury’s riskless interest rates. However, investors should note that not all REITs are equal. They must be identified between different horns of the sector, with some areas having stronger tailbones than others. “The healthcare REITs in particular (and) Senior Housing REITs have been doing very well over the past two or three years,” Brown said. “They have not only recovered from the pandemic, but have also seen very strong growth as boomers age to the sector’s target demographic.” On the other side of the spectrum, some sub-sectors of REITs are slowing in revenue. “Self-storage – They reported double-digit net operating profit growth (NOI) in 2022, and now NOI growth is negative. They’re falling,” Brown added. The analyst shared three names that he liked. And income-oriented investors may come to appreciate the properties of today’s rocky markets: real estate income, federal real estate and health peak. The dividend real estate income and federal real estate pair achieved a solid track record of dividend payments. Both names are dividends, meaning they have increased their dividends each year for at least the last 25 years. “They said, ‘Hey, we pay a consistently growing dividend. We have a track record of doing this every year. We have experienced the pandemic, the ’08 and ’09 financial crisis. “They aren’t close to getting that dividend narrowed down. I think these two are trading at a 20% to 25% discount on fair value,” he added. Real estate income is triple net lease REIT. This means that tenants are hooking for real estate taxes, building insurance and maintenance costs. The company’s tenants include 7-Eleven and General Dollar. In the fourth quarter, REIT adjusted funds, equivalent to REIT earnings per share, were $1.05, except for the $1.06 per share expected by analysts voted by FactSet. However, revenues of $1.34 billion exceeded the expected $1.28 billion. “The management provided guidance that was relatively parallel to our expectations,” Brown said in a recent report. “The growth of the same store (net operating income) is expected to be around 1.0% in 2025, slightly below the 1.5% estimate, but not substantially different.” Stocks have grown by about 5% in 2025, with real estate income offering a dividend yield of 5.7%. According to LSEG, most analysts covering stocks have a hold valuation. The dividend yield on federal real estate, which includes the TJX Companies’ HomeGoods unit and Starbucks, is 4.6%. Although stocks fell about 15% in 2025, REIT is favored on Wall Street, with 13 of the 17 analysts valuing purchases or strong buys per LSEG. Management has recently highlighted two new projects. Redevelopment of homes in Hoboken, New Jersey and redevelopment of Andorra Shopping Center in Philadelphia. “We are encouraged by the project’s expected yield given that we assume we can achieve a 7.0% yield on future development projects,” Brown said in a recent report. Healthcare Trends HealthPeak Properties, a portfolio that includes Baylor University Medical Center in Dallas and the Hayden Research Campus in Lexington, Massachusetts, offers investors a 6% dividend yield. The stock is about flat in 2025, but analysts consider it a buy or strong buy per LSEG. Brown said the mega pharmaceutical companies are likely to still want lab space even in the recession, but net operating income growth may not be that strong in that scenario. “HealthPeak offers stable NOI growth – it’s not exciting, but it looks stable as the sector begins to consider slowing down NOI growth,” Brown said.
Morningstar likes these solid dividend payers when the market gets choppy
