Value is in the eye of the beholder. How about the saying that some people’s trash is other people’s treasure? The fact that some investors see opportunities where other investors don’t is what makes Wall Street work. Right now, more intrepid investors, particularly those with a value focus, will want to take a look at Realty Income (NYSE: O), Rexford Industrial (NYSE: REXR), and EPR Properties (NYSE: EPR). However, there are important differences between this trio of high-yield value stocks.
Realty Income is not an exciting company and, frankly, never will be. It is just too large, with more than 15,400 properties and a focus on net lease assets (net leases require tenants to pay for most property-level operating costs). Add in an investment-grade-rated balance sheet for good measure, and the real estate investment trust (REIT) is basically built to be a core, long-term dividend holding. The company even trademarked the nickname “The Monthly Dividend Company,” which speaks to the dividend frequency and the importance management places on the dividend. Notably, the dividend has been increased for three decades and counting at a compound annual rate of roughly 4.3%.
The stock, however, is down roughly 30% from its pre-pandemic highs. That’s largely a function of higher interest rates, which makes it more costly for Realty Income to finance property acquisitions. That’s a legitimate concern, but long-term investors shouldn’t get too caught up in this fact. Property markets have historically adjusted to interest rate changes in time. Realty Income’s size and financial strength give it a leg up when it comes to raising capital to invest. So, even if the acquisition market is difficult, Realty Income is operating from a position of strength. If you can get comfortable with the idea that management will navigate the headwinds it faces, you should consider collecting Realty Income’s very attractive 5.9% dividend yield.
Rexford is an industrial REIT with a unique focus on the Southern California market. There is extra risk in this sharpshooter approach; most other industrial landlords try to diversify geographically. But here’s the interesting thing: Southern California is one of the largest industrial property markets in the world, is a key gateway into the U,S., and has historically had powerful supply constraints. It is a very good market to focus on, if you want to focus on just one region.
