3 REITs to Weather-Proof Your Portfolio in Any Market Condition

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Real estate investment trusts, or REITs, remain a mainstay for diversified retail portfolios. REITs, traded on public exchanges like other stocks, typically represent a bundle of properties managed by a central company. Rather than focusing on capital gains through property flips, REIT firms actively lease and manage the properties in a portfolio. This business model, coupled with a mandate to distribute at least 90% of taxable income to shareholders, means REITs are ideal alternatives for income-focused investors. This had led to the rise of REITs for market stability.

REITs also offer real estate exposure to investors otherwise unable or uninterested in buying and directly managing properties. REITs offer sector diversification, too, and investors can pick a range of property types through specific REITs. 

REITs aren’t a magic pill, though. Discerning investors should still shy away from, for example, corporate and commercial property-focused REITs as remote work wars wage on. Still, because REITs offer exposure to so many types of property, investors should be able to find companies aligned with their investment goals and able to withstand most economic conditions.

These are three REITs that may be able to stand up to tightened real estate markets if bearish sentiment comes to fruition throughout 2023.

American Tower Corp (AMT)

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American Tower Corp (NYSE:AMT) is a region-diversified cell tower company that owns and operates more than 225,000 towers globally. As you can no doubt guess, cell towers are an industry mainstay. These unique properties will likely remain unaffected by fluctuations in the broad real estate market. In fact, as more consumer devices connect through the “Internet of things,” cell tower functionality and dispersion will become increasingly important. This bodes well for American Tower’s prospects. This makes it one of those REITs for market stability.

American Tower is also diversified geographically. The company operates towers in developed countries like the United States while managing towers in emerging markets like Africa. As more consumers become digitally connected, these emerging markers present a fantastic growth opportunity for American Tower. 

Like all REITs, American Tower offers an enticing dividend. Unlike some sectors, though, cell tower operations are sufficiently profitable that the firm increased its dividend over the past 20 distribution cycles. This reliability indicates that American Tower is well-suited to weather any economic storm.

Equinix (EQIX)

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Equinix Inc (NASDAQ:EQIX) is comparable to American Tower in many ways but instead focuses on data center ownership and management. Equinix owns and leases more than 240 data centers throughout the Americas, Europe, Middle East, and Asian-Pacific markets. 

Critically, Equinix partners include some of the biggest names in cloud computing and digital technology. Boasting a client portfolio that includes Cisco (NASDAQ:CSCO), Oracle (NYSE:ORCL), Amazon (NASDAQ:AMZN), and more, Equinix is sufficiently “sticky” and vital to these corporate operations that they’re poised to withstand economic downturns that may arise. The firm’s recent Investor Day documentation affirms its position as an industry mainstay. 

Executives boasted the firm’s rapid growth rate, industry penetration, and adaptation to volatile macroeconomic conditions. Equinix management’s thesis, if it holds steady, means the firm is ready to continue its rapid growth cycle. The company may see a snowball effect as more firms embrace cloud computing and large-scale digitization efforts. All in all, it’s one of those REITs for market stability.

Equinix’s trailing twelve-month dividend is a hefty $13.64 per share. Still, the share price is steep for most investors unable to take advantage of fractional investing platforms. Despite the high price, Equinix’s stable dividends and decent payout ratio stand out amongst REIT peers.

Vanguard Real Estate Index Fund ETF (VNQ)

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Expense ratio: 0.120%, or $12.30 annually on a $10,000 investment. 

Vanguard Real Estate Index Fund ETF (NYSEARCA:VNQ) is custom-made for investors interested in REIT diversification but prefer avoiding the risk of individual company picks. VNQ’s offerings include many stable firms able to withstand economic turbulence. Companies within VNQ’s portfolio include both American Tower Corp and Equinix, alongside mature, in-demand firms like Realty Income Corp (NYSE:O), Public Storage (NYSE:PSA), and Prologis Inc (NYSE:PLD). This range primarily focuses on actionable real estate staples like logistics and rental properties. This core stability may help VNQ avoid sector-specific risk if rising rates put downward pressure on markets.

VNQ reliably beats the index it tracks, meaning the management team behind the fund is savvy enough to squeeze extra gains amid sector-wide increases. While the company’s dividend yield, 3.75%, is somewhat less than desirable amid higher-yield fixed-income investments, VNQ remains a quality diversification tool for well-developed portfolios. Furthermore, the management team and internally-diversified array of companies make the firm a stable boat no matter the economic storm. 

On the date of publication, Jeremy Flint held a long position in VNQ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.

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