We recently compiled a list of the 12 Best REIT Dividend Stocks To Buy for 2024.In this article, we are going to take a look at where American Tower Corporation (NYSE:AMT) stands against the other REIT dividend stocks.
In the United States, real estate investment trusts (REITs) play a significant role in the real estate sector and the overall financial system. Equity REITs pool funds from numerous investors to purchase and manage income-generating properties, such as residential, commercial, and industrial real estate. These REITs are publicly traded on major stock exchanges, allowing investors to earn steady income—primarily from rental revenues—without the need to personally manage or fund the properties. However, REIT share prices can fluctuate and are highly responsive to shifts in interest rates.
The introduction of the REIT structure transformed real estate investing. Over time, REIT indices have adapted to reflect the sector's evolution. With the growth and increasing significance of new segments, the broader REIT landscape has changed considerably, yet it continues to provide attractive income opportunities. The real estate market has become more diverse, with different segments offering distinct risk and return dynamics.
It is frequently seen that many investors remain cautious about real estate and REITs, partly due to challenges faced by the retail and office subsectors. Additionally, the sector's reliance on significant leverage makes it vulnerable to rising interest rates. However, recent performance trends have caught investors' attention. Over the past three months ending November 2024, investors in the US have allocated around $4.5 billion to REIT and real estate-focused ETFs, surpassing investments in any other sector, according to a report by Bloomberg. This growing interest may be attributed to unique features of the REIT market and broader macroeconomic developments.
According to a report by Nareit, as the third quarter of 2024 begins, it signals nearly two years of disparity between REIT valuations and those of private real estate. Although the gap between the two is gradually narrowing, the prolonged adjustment period still presents a compelling opportunity for institutional investors to incorporate REITs into their real estate investment strategies. The report further highlighted the performance of REITs in recent years. Since 2022, REIT performance has generally moved inversely to changes in the 10-year Treasury yield. In the third quarter of 2024, REITs delivered strong total returns as the 10-year Treasury yield declined, leading to significant reductions in the REIT implied cap rate and narrowing the public-private cap rate spread. However, since the end of the third quarter, a notable rise in the 10-year Treasury yield has caused REIT total returns to decline, likely widening the cap rate spread again.
If this inverse relationship continues, interest rates will remain a key factor in the valuation adjustment process. Narrowing the public-private cap rate gap is crucial for reigniting property transactions and offers real estate investors an opportunity, as it could drive REIT outperformance into 2025. If REITs sustain their momentum and private property investors maintain their gradual increases in appraisal cap rates, the commercial real estate market may finally resolve its valuation disparity between public and private assets.
REITs are an attractive option for income-focused investors. By law, they must distribute at least 90% of their taxable income to shareholders as dividends. Unlike many other companies, REITs typically do not retain earnings, which often results in higher yields compared to other equity investments. According to Tower Financial Group of Wells Fargo Advisors, in 2023, equity REITs offered an average yield of 3.9%, significantly outpacing the 1.4% average yield of stocks in the broader market. In view of this, we will take a look at some of the best dividend stocks in the REIT sector.
Our Methodology:
For this list, we scanned Insider Monkey's database of 900 hedge funds as of Q3 2024 and picked REIT companies that pay regular dividends to shareholders. Next, we narrowed down 12 companies that are popular among elite funds at the end of Q4 and ranked them in ascending order of the number of funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A wide angled view of a high-rise office building, the windows reflecting a nearby cityscape.
American Tower Corporation (NYSE:AMT) specializes in wireless and broadcast communications infrastructure in several countries. The challenges faced by the company are overshadowing the strong and consistent demand for communications and data infrastructure. As these challenges are anticipated to subside, the REIT has the potential to achieve significant growth starting in 2025 and beyond. The stock is down by nearly 10% since the start of 2024.
During the third quarter, a key development for American Tower Corporation (NYSE:AMT) was the sale of its underperforming Indian tower operations to Brookfield Infrastructure. This transaction allowed Brookfield to expand its presence in the Indian market, increasing its tower portfolio from 175,000 to 253,000 towers while broadening its customer base. Brookfield acquired the assets at a favorable price, as American Tower faced profitability challenges with the portfolio due to tenant-related issues. The company reported revenue of $2.52 billion in Q3 2024, which fell by 10.5% from the same period last year.
“American Tower Corporation’s (NYSE:AMT) stock rebounded nearly 20% during the third quarter, helped by the tailwind of lower interest rates. The stock has now appreciated more than one-third since U.S. 10-Yr Treasury interest rates peaked in late April 2024. As a levered REIT, lower rates benefit AMT’s equity value through a lower cost of debt and a higher value for its long-duration cash flows. Fundamental expectations did not change materially during the quarter as the company modestly increased their growth expectations for the year. The long-term global opportunities for 5G deployment, edge-of-network computing, and datacenters, remain attractive and are not fully reflected in the current stock price, in our opinion.”
American Tower Corporation (NYSE:AMT) currently pays a quarterly dividend of $1.62 per share. Though the company has not raised its dividend this year, it has increased its payouts at an annual average rate of 20% since 2013. The company experienced significant growth over the years by expanding its data infrastructure portfolio to meet rising data demand. Although it encountered challenges in 2024, the company anticipates a rebound starting in 2025, positioning itself to resume dividend increases. This outlook makes it an appealing choice for investors seeking both income and substantial growth potential. The stock supports a dividend yield of 3.28%, as of December 12.
American Tower Corporation (NYSE:AMT) was a popular stock among elite funds at the end of Q3 2024, with hedge fund positions growing to 73, from 63 in the previous quarter, according to Insider Monkey's database. The overall value of these stakes is more than $3.7 billion.
Overall AMT ranks 1st on our list of the best REIT dividend stocks to buy for 2024. While we acknowledge the potential of AMT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
