The S&P 500index (^GSPC 0.30%) average yield is just 1.2% today. You can do much better than that without too much effort. For example, sector-leading real estate investment trusts (REITs) Realty Income (O), Prologis (PLD 1.96%), and AvalonBay (AVB 0.41%) have yields that range from 2.9% to 5.5% at their current share prices. You can find higher yields than 5.5% in the REIT sector, but what you won’t easily find are industry-leading performers like Realty Income, Prologis, and AvalonBay. Here’s why each is worth buying and holding, hopefully forever.
Realty Income is the net lease giant
Roughly 73% of Realty Income’s rent roll comes from single-tenant, triple net lease retail assets. Triple net leases require tenants to pay for most property-level operating costs such as taxes, insurance, and maintenance. The rest of its portfolio is a mix of industrial assets and some large one-off properties (including vineyards and casinos). But, all in, Realty Income is basically a retail-focused REIT. It happens to be the largest player in the triple net lease niche, with a market cap of about $50 billion and a portfolio of more than 15,400 properties.
Size carries advantages in this situation, because Realty Income generally has greater access to capital markets than its smaller peers. With its investment-grade-rated balance sheet, it can raise capital at lower costs than its rivals. That lets it bid aggressively for properties and still turn a profit on them. It also has a reach that few can match, and is increasingly investing in Europe as well as in the U.S. There’s a reason Realty Income has been able to increase its dividend every single year for three decades: It has a good business model and executes well. With the stock paying a lofty 5.5% yield at its current share price, you’ll want to buy this REIT and hold it for a very long time.
Prologis is the industrial giant
Based on market cap, Prologis is even bigger than Realty Income, with a value of about $109 billion. However, its focus is different: It buys industrial assets, largely warehouses. The REIT owns about 5,600 buildings with a total of 1.2 billion square feet of space. That portfolio is spread across four continents and 20 countries. To put it simply, Prologis owns assets in most of the world’s vital transportation hubs — right where its tenants want to be located.
At its current share price, its dividend yield is 3.3%, which isn’t exactly huge. However, management has hiked the payout at an annualized rate of more than 10% during the past decade, which is huge. Given that demand for warehouse space remains high and that Prologis has been able to raise rents dramatically on expiring leases (by a whopping 67% in the third quarter of 2024), there’s no particular reason to believe that Prologis’ growth is about to stall. And given its vital assets in major trade hubs, Prologis is the kind of industrial REIT that you buy and — like Realty Income — hold for a very long time.
AvalonBay isn’t a giant, but it’s really good at what it does
Unlike Prologis and Realty Income, apartment-focused AvalonBay is not the largest REIT in its niche. That’s by design, however, because management is focused more on having the best assets rather than just having a lot of assets. Thus, AvalonBay is always actively managing its portfolio, which currently includes about 305 properties with more than 92,900 apartments.
What’s exciting about AvalonBay is its ability to navigate the ups and downs of the apartment sector. It builds new communities from the ground up when that makes the most financial sense. When it makes more sense to buy assets (because it’s cheaper than building) it buys assets. And when asset values are high and it makes sense to sell apartment complexes, well, it does just that. Overall, AvalonBay is always looking to have the most up-to-date and desirable portfolio of apartments, because that is what allows it to charge higher rents and push through big rent increases.
Right now, AvalonBay is focused on building. It completed five new developments in the first nine months of 2024 and started another seven. In total, it has 19 communities in some stage of construction. It also sold two properties. AvalonBay’s top and bottom lines should increase as those properties get completed, with any asset sales simply helping to cover its development expenses while likely removing older, less desirable units from the portfolio.
Management’s philosophy of always looking to be the best makes AvalonBay a worthwhile apartment REIT to own (perhaps forever) even though it isn’t the biggest player in the sector — and even though its dividend yield is the lowest on this list at 2.9%. Basically, in this case, you are paying for value. But history suggests AvalonBay is worth it.
You can get higher yields, but it would be hard to find better REITs
There are REITs out there offering yields well north of 10%. But ultra-high yields like that usually come with added risk. If you want to buy and hold a high-yield REIT, you’d be better off sticking to the industry leaders. Realty Income, Prologis, and AvalonBay are all the kinds of dividend-paying businesses that long-term dividend investors will find attractive today and, if history is any guide, long into the future.
Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Prologis and Realty Income. The Motley Fool recommends AvalonBay Communities and recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.
