For investors looking to earn income through high dividend yield opportunities, REITs have historically proven to be good investment options. However, with so many different REITs to choose from, it can be hard to decipher the clear winners from the mediocre investment options. So, which REIT is the best investment?
What Is a REIT?
Essentially, a real estate investment trust or REIT is an organization that owns or finances income-producing real estate. However, not all real estate investment companies are REITs. To be considered a REIT, a real estate investment company must meet specific criteria, including:
- A REIT must invest at least 75% of its total assets in real estate, cash, or U.S. Treasuries.
- A REIT must derive at least 75% of its gross income from rents, interest on mortgages that finance real property, or real estate sales.
- A REIT must pay a minimum of 90% of its taxable income to shareholders in the form of dividends.
- A REIT must be an entity that’s taxable as a corporation.
- A REIT must be managed by a board of directors or trustees.
- A REIT must have at least 100 shareholders within its first year of existence.
- A REIT must have no more than 50% of its shares held by five or fewer individuals.
What Are the Benefits of Investing in REITs?
From an investment standpoint, REITs are an excellent way to capitalize on the many opportunities within the real estate industry without directly buying and selling real estate property.
In addition, REITs also offer investors the opportunity to receive a steady income through dividends while also providing investors the chance to receive long-term capital appreciation on their investment.
With REITs collecting owning more than $3.5 trillion in gross assets and more than 500,000 properties, there is certainly a great deal of potential for investors at all stages.
In addition, some top benefits of investing in REITs include:
- REITs offer investors the opportunity to earn stable and substantial dividend yields.
- REITs have historically provided investors with competitive long-term total returns and overall solid performances.
- REITs traded publicly on the major stock exchanges provide investors with liquidity.
- REITs offer investors a way to diversify their portfolios beyond traditional stocks and bonds.
Is Prologis the Best REIT to Buy This Year?
When it comes to investing in REITs, investors have numerous options to choose from. However, one REIT that may prove to be the best investment this year is Prologis.
Founded in 1983, Prologis, Inc. is a REIT based out of San Francisco, California. The Prologis organization business model is centered around warehouses and supply chain logistics.
After the merging of ProLogis and AMB Property Corporation in 2011, Prologis became the largest industrial real estate company in the world. Today, the Prologis company owns warehouses throughout North America, South America, Europe, and Asia.
Prior to the ProLogis and AMB Property Corporation merger, ProLogis was known as the Security Capital Industrial Trust.
In 1994, the Security Capital Industrial Trust went public on the New York Stock Exchange under the stock ticker SCI. In 2011, after the merger of ProLogis and the AMB Property Corporation, the new Prologis, under the stock ticker, PLD, was trading around $36 per share.
At last count, PLD is trading with a market cap of approximately $115 billion.
With its stellar history, PLD is shaping up to have a bright future ahead of itself and may even be the best REIT for investors to buy this year.
As discussed, Prologis owns warehouses around the world and rents them out to organizations in every sector. The Prologis company also offers its customers customized warehousing and supply chain solutions.
With warehousing space in short supply and more retailers upping their e-commerce game since the beginning of the COVID-19 pandemic, the services provided by Prologis are in significant demand. As time progresses and technology advances, e-commerce will become even more prevalent in our society, and Prologis is sitting in a prime position to capitalize on this growing industry.
Is Prologis a Buy, Sell, or Hold?
All things considered, is Prologis a buy, sell, or hold? Well, with the REIT currently sitting near the top-end of its trading range, it is not a bargain REIT by any means.
However, the Prologis company is seated in a very nice spot with the potential of massive growth in the e-commerce industry combined with the current demand for more warehousing space.
From a valuation perspective, Prologis has a per share fair market value of $172, representing double-digit percentage upside.
Ultimately, the combination of these factors points to Prologis being a good investment option for those looking to invest in REITs this year.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.