By Paul R. La Monica

Tariffs. Selloff. Recession. The words rolling off tongues and screaming from headlines.

Where to invest and not lose money? To earn a juicy payout even?

Real estate investment trusts, or REITs. They've been a top safe haven trade this year exactly because many have big dividends. Stocks that generate steady income are particularly attractive now that longer-term bond yields have tumbled as well.

"It's been interesting to watch the market dynamic unfold since President Trump took office as few, if any, investors assumed that REITs would outpace the S&P 500 nearly 2 1/2 months into the new year. But that's exactly what's happened," wrote Evercore ISI analysts.

The Real Estate Select Sector SPDR exchange-traded fund has an average dividend yield of 3.3% and has already gained nearly 3% not even three full months in to 2025. In contrast, the S&P 500 is off more than 5%.

Dividend stocks overall been a bright spot in this suddenly choppy market. The ProShares S&P 500 Dividend Aristocrats and SPDR S&P Dividend ETFs are both up 3% for the year.

The slide in long-term bond rates adds to that Goldilocks environment for real estate names. The 10-year Treasury, hovering around 4.3%, could be "just right" for investors looking for yield.

"REITs have historically outperformed broader equities in the U.S. and globally when the U.S. 10-year Treasury yields have been in the 4-5% range," said analysts with CenterSquare Investment Management.

So can income-roducing REITs keep shining? And if they can, what types are the really promising plays?

Market experts Rick Romano and Iman Brivanlou have their takes.

"This is the sweet spot for REITs, declining interest rates and slower economic growth but still positive growth," said Romano, who heads global real estate securities at PGIM Real Estate.

Romano's firm has big holdings in senior housing owner Welltower and digital infrastructure firm Equinix.

Healthcare REITs, particularly senior living centers, should benefit from favorable demographics regardless of what's happening in the economy, Romano told Barron's.

And booming demand for artificial intelligence should be a boon for data-center names.

The evolution of AI, along with growing data consumption by individuals and businesses on smartphones, is also good news for real estate firms that own wireless towers.

"We want to be in the growthier part of real estate," said Brivanlou, who heads income equities at TCW. "AI and digital are themes we are playing. There is significant visibility."

Brivanlou told Barron's that TCW owns Equinix as well as rival Digital Realty. But he prefers the big-tower companies, such as American Tower, Crown Castle, and SBA Communications.

Analysts at UBS like REITs, too, -- and so-called triple net lease companies, real estate firms that have tenants paying property taxes, insurance, and maintenance in addition to rent. They tend to be the most stable in an uncertain economy.

UBS recommends Agree Realty Corp., Essential Properties Realty Trust and Four Corners Property Trust, which pay dividends that yield from about 4% to 5%.

And even though tariffs might hurt consumer spending and retail sales, analysts think there are still be bright spots for mall owners.

Simon Property Group has generated steady net operating income growth over the past few years and should keep going, the UBS analysts wrote. It has a dividend yield of nearly 5%.

Analysts at Compass Point have on Simon Property Group on their list and like strip-mall owners Kimco and Federal Realty Investment Trust, which also both pay dividends with yields above 4%.

But there's one area of the REIT world that most experts are still avoiding: offices. The UBS analysts expect "continued sluggish tenant demand" for offices and that a softer economy "could further complicate the recovery."

Even though more companies are mandating that employees come back to work in person, many big owners of office properties may be forced to negotiate new leases that are much less favorable. The reality is that many people with white-collar jobs will keep working from home.

So look out for office REITs. But be on the lookout for healthcare, AI, and strip-mall connections. They're worth considering.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 12, 2025 02:30 ET (06:30 GMT)

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