Investors seeking solid dividend income as the S & P 500 continues its retreat from record highs may want to take a closer look at a few select real estate investment trusts. The real estate sector is little changed in 2025, beating the information technology and consumer discretionary sectors that are down by double digits. “I think real estate is showing up as a bright spot because the 10-year Treasury yield has come down,” Morningstar senior equity analyst Kevin Brown told CNBC. “When rates have come down, the real estate sector has outperformed. When they have gone up, the sector has underperformed versus the S & P 500.” Indeed, the benchmark yield was around 4.8% in January, but on Thursday was trading at about 4.27%. Real estate investment trusts are particularly sensitive to interest rates because higher rates raise borrowing costs for REITs, and make REITs’ dividend yields less attractive to income investors compared to the risk-free rate on Treasurys. But investors should be aware that not all REITs equal. They’ll have to discern among different corners of the sector, with some areas having stronger tailwinds than others. “The health-care REITs in particular [and] senior housing REITs have done very well over the past two to three years,” Brown said. “They have gone from not just recovering from the pandemic, but they’ve also seen very strong growth as the boomer generation ages into the target demographic for the sector.” On the opposite end of the spectrum, some subsectors of REITs have seen earnings slow. “Self storage – they were reporting double-digit net operating income growth [NOI] in ’22, and now it’s negative NOI growth. They have fallen off,” Brown added. The analyst shared three names that he likes – and that income-oriented investors may come to appreciate in today’s rocky market: Realty Income , Federal Realty and Healthpeak Properties . A pair of dividend aristocrats Realty Income and Federal Realty made the grade because of their solid track record of dividend payments. Both names are dividend aristocrats, meaning they’ve been raising their dividends each year for at least the past 25 years. “They have a historical precedent of ‘Hey, we pay a consistent, growing dividend. We have a track record of doing this every single year. We’ve gone through the pandemic, the financial crisis of ’08 and ’09, and we’re still able to pay a dividend and grow it,'” Brown said. “They aren’t anywhere close to having that dividend get squeezed, and we think those two are trading at a 20% to 25% discount to their fair value,” he added. Realty Income is a triple net lease REIT, meaning its tenants are on the hook for real estate taxes, building insurance and maintenance expenses. The company’s tenants include 7-Eleven and Dollar General. In the fourth quarter, Realty Income’s adjusted funds from operations — a REIT’s equivalent of earnings per share — came in at $1.05, short of the $1.06 per share anticipated by analysts polled by FactSet. But revenue of $1.34 billion topped the expected $1.28 billion. “Management provided guidance that was relatively in line with our expectations,” said Brown in a recent report. “Same-store [net operating income] growth is expected to be approximately 1.0% in 2025, which is slightly below our 1.5% estimate but not materially different.” Shares are up about 5% in 2025, and Realty Income offers a dividend yield of 5.7%. Most analysts covering the stock have a hold rating, according to LSEG. Federal Realty, whose tenants include TJX Companies ‘ HomeGoods unit, and Starbucks , has a dividend yield of 4.6%. Shares are down about 15% in 2025, but the REIT is liked on Wall Street, with 13 of 17 analysts rating it a buy or strong buy, per LSEG. Management recently highlighted two new projects: A redevelopment of a residential property in Hoboken, N.J. and a redevelopment of the Andorra Shopping Center in Philadelphia. “We are encouraged by the projected yields on the projects, given that we assume the company can achieve 7.0% yields on future development projects,” Brown said in a recent report. Health-care trends Healthpeak Properties, whose portfolio includes Baylor University Medical Center in Dallas and the Hayden Research Campus in Lexington, Mass., offers investors a dividend yield of 6%. Shares are about flat in 2025, but analysts largely deem it a buy or strong buy, per LSEG. Brown said that giant pharmaceutical companies will likely still want lab space even if there were a recession, although net operating income growth may not be as strong in that scenario. “Healthpeak is offering stable NOI growth – that isn’t exciting – but all of a sudden when sectors start looking at decelerating NOI growth, stable looks attractive,” Brown said.
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