The Best 3 REITS to BUY in 2025 for Dividend Growth Investors

Hey everyone, welcome back to another dividend investing video. A real estate investment trust, or REITs, are a fantastic way for the average dividend investor to gain some real estate exposure in their portfolios. They allow us to invest in real estate without the duties or responsibilities of being a landlord or needing to take on a bank loan. And let's face it, REITs have been struggling in the market for the last few years, but that's exactly why I think 2025 could be an excellent year to accumulate shares of some of the best REITs out there. In today's video, I'm going to highlight three REITs in particular that I believe are incredibly compelling and what I would call the best REITs for 2025. I'm Nick and this is the Dividend Growth Income channel. Thank you for joining me today. I'm not a financial advisor or guru. I'm just a regular guy who wants to share my love of dividend growth investing and building financial independence with passive income. If you could, please do me a favor, smash the like button and subscribe to keep up with future videos. This helps us out more than you can imagine with the algorithm, so we can bring you more quality dividend investing content. Before getting into these REITs, I'd be remiss if I didn't mention the option to invest in this sector via an ETF. One of the most popular options out there is the Vanguard Real Estate ETF, ticker VNQ. By their own words, VNQ invests in stocks issued by REITs, companies that purchase office buildings, hotels, and other property. They track an index known as the MSCI-US Investable Market Real Estate 2550 Index, and their goal is to provide a solid mix of income and moderate long-term capital appreciation. Let's take a glance at the top 10 holdings within VNQ. The top holding in the fund is Prologis, making up 6.78% of the fund's weight, followed by Equinix and American Tower Corporation, both around 6% weight each. Then we have Guell Tower, Digital Realty Trust, Simon Property Group, Public Storage, Realty Income, ticker O, CBRE Group, and Crown Castle, ticker CCI. Together, these 10 stocks make up over 44% of the fund, and the fund itself is composed of 163 stocks in total, so these top 10 are essentially the top players in the REIT space. Now, there are pros and cons to investing in REITs through a vehicle like VNQ. The pros are you have instant diversification across a wide range of real estate sectors. You get a low expense ratio of 0.13%, which keeps costs manageable. It's highly convenient, especially for newer investors or those who prefer not to pick individual stocks. But the cons are you're stuck with companies you may otherwise avoid because it's a package deal that includes the good and the bad, and this can ultimately cap your returns. From a dividend growth perspective, VNQ isn't it. It has a 5-year dividend growth rate of just 1.78%, which isn't ideal for dividend growth investors. Its dividend payments can be inconsistent, although it does offer a nice yield of 4% at the time of publishing, so it's not a bad way to get your real estate exposure and diversify your portfolio if you want to go that route. In addition to VNQ, other notable REIT ETFs include the Schwab U.S. REIT ETF SCHH and the iShares U.S. Real Estate ETF, ticker IYR. These are great alternatives, worth researching if you prefer to go that ETF route. But I'm sure, like me, you prefer to invest in companies with a proven track record of consistent dividend growth, strong fundamentals, and looking for that attractive valuation, especially those that are well-positioned for future growth. And with this in mind, let's dive into my top three REIT picks for 2025. The first REIT we're discussing today is Mid-America Apartment Communities, ticker MAA. Now this is a standout in the apartment sector. MAA has earned its reputation with a robust portfolio of high-quality apartment properties located across key markets in the U.S. sunbelt, and it boasts an impressive 29-year history of paying uninterrupted dividends. With market capitalization approaching $24 billion and over 100,000 apartment units, MAA is one of the most compelling picks in the REIT sector for dividend-growth-focused investors. Now let's dive in and take a closer look. Over the last year, MAA has outperformed the broader REIT sector with shares up nearly 12%. Currently, the stock is trading near the midpoint of its 52-week range. And when we compare MAA's total return to that of VNQ, it's clear that MAA has delivered exceptional performance with a total return of 153%, more than triple that of VNQ. This is a 10-year stretch. MAA's forward price to adjusted funds from operations, PA to AFFO, is currently standing at 18.7%. This is slightly below its 5-year historical average of 20.5. It's important to note that for REITs, the price-to-earnings ratio isn't as relevant. What we're looking at is the P to AFFO. AFFO, adjusted funds from operations, is similar to how free cash flow works, but it's for REITs. Based on this P to AFFO, MAA appears reasonably valued, with an expected price range between $146 and $178. Currently, we're at the lower end of that range. For a high-quality REIT like this, I feel comfortable picking up shares around this level. However, for my own portfolio, I'd like to see it dip into the $130s or even the $120s, as it was in that range not too long ago. And at that point, I would be definitively undervalued, in my opinion. Now, from a dividend yield perspective, MAA shares are currently yielding 4.09%, which is a significant increase compared to its 5-year average yield of 3.41%. 20% higher yield could indicate that the stock is potentially undervalued. In fact, if MAA were trading closer to that historical average, it'd be valued between $160 and $196. Based on dividend yield theory, MAA looks undervalued, and for long-term dividend growth investors, acquiring shares at this level could be a great opportunity. Now, let's take a look at its dividend growth history. MAA has an impressive track record of 29 years of uninterrupted dividend payments, with no reductions. 13 years ago, they began growing their dividend, and they've not looked back since. The 5-year average annual dividend growth rate stands at an impressive 9% per year. This is quite remarkable for a REIT. Their most recent dividend increase, announced in December, was at the lower side at 3.1%, but still reflects their commitment to returning that value to shareholders, and I'm here for it. MAA pays a non-qualified dividend quarterly in April, July, October, and January with a annual distribution of $6.06 per share. Now, what do I mean by non-qualified? Remember, REITs are taxed as ordinary income, meaning their dividends don't receive the favorable tax treatment that typical dividend stocks do. I go into more detail on this in a recent video where I break down my own dividend tax bill for the public account on this channel for 2024, and I'll leave a link to that video in the description. Now, the dividend payout takes up 77% of MAA's forward-adjusted funds from operations. This might seem a bit high, but REITs have some more flexibility in this area, and they are required to distribute at least 90% of their taxable income to maintain their tax-exempt status. Effectively passing the tax responsibility on to us, the investor. So, this payout ratio is actually a positive sign. In fact, SimpliSafe Dividends has assigned MAA a dividend safety score of 97, rated very safe as of November 14, 2024. This rating suggests that a dividend cut is highly unlikely. It's a strong endorsement of MAA's stability. Not many REITs have a better dividend safety score than this. MAA's debt situation is also well under control, with a net debt-to-ebit ratio of 3.85. They're well below the typical leverage seen in many REITs, and their net debt-to-capital stands at 44%, which isn't a borderline range. Still manageable for how the company operates. While it's not the lowest, I don't see it as a cause for concern either, as this is typical for their business model. Wall Street analysts have an average price target of $165.22 for MAA, which represents 11.5% potential upside from the current price. So, with both strong dividend growth and the possibility for a capital appreciation, this REIT is looking like a solid choice. Here's a fun fact. When I did a similar video last year discussing the top REITs for 2024, MAA was one of the most popular picks down in the comments section. That added another reason to highlight it today as the community clearly loves this stock and it's easy to see why. While I don't own the MAA at the moment, I'm considering adding it to my Roth IRA this year. They're focused on high growth markets and seem to be avoiding areas where people are moving away from. MAA appears to be a well-managed REIT and in my opinion, it is one of the best to buy and hold in 2025. Our next REIT for 2025 is Prologis, ticker PLD. This is a true leader in the industrial REIT sector. Prologis specializes in logistics and distribution centers, the backbone of the e-commerce ecosystem, with a focus on high-barrier, high-growth global markets. As of September 30, 2024, Prologis boasted investments in properties and development projects totaling an impressive 1.2 billion square feet across 20 countries. This is truly a global presence and one of the fastest-growing real estate sectors. Prologis isn't just large, it's the largest REIT by market capitalization, with $218 billion in assets under management. Its customer base includes 6,700 companies featuring big names like Coca-Cola and Starbucks in consumer products, UPS in transportation, and retailers like Amazon, Walmart, and Home Depot, the later of which I happen to own personally as their stock. Prologis even has a foothold in data centers, and they support critical infrastructure like the U.S. Postal Service. However, 2024 was a rough year for Prologis and its shareholders. The stock took a significant hit, dropping over 22% compared to the broader REIT market with a decline of just 2%. But Prologis wasn't alone, the entire industrial REIT sector has been in the dumps. Stagg Industrial has fallen 16%, Rexford Industrial Realty was down 33%, and East Group Properties slid 15%. So what caused this? I think it's a combination of factors, you have the cooling of the e-commerce boom that really peaked during the pandemic, then you have the rising interest rates that put pressure on both earnings and valuations across the sector. But here's why I believe Prologis is positioned for a strong comeback in 2025. The long-term trend of e-commerce growth remains intact, and if we see stabilization or even cuts in interest rates, Prologis and its peers could benefit significantly. Now if we compare the 10-year total return of Prologis to that of BNQ, which represents the broader real estate market, Prologis has outperformed it significantly, delivering almost 5x the return. Over the last decade, Prologis achieved a total return of 213.49%, showcasing its strong track record of growth and resilience. Looking at valuation, the current forward price to AFFO of Prologis is 22.6. This is a meaningful discount compared to the 5-year average of 28.2. This indicates the stock is trading below its typical valuation levels, and based on Prologis appears undervalued, with an estimated fair price range between $117 and $142. So for investors seeking exposure in industrial REITs, this could be an excellent opportunity to get a position going in the sector-leading giant. As dividend investors, let's dive into the details of Prologis' dividend. It's currently yielding 3.71%. This marks a significant increase from its 5-year historical average of 2.6%, which is yet another indicator that Prologis might be undervalued right now. Using dividend yield theory, if Prologis were trading closer to its historical yield, we'd expect a share price between $133 and $162. And when you look back over the last 20 years, there have been very few opportunities to such an attractive starting yield on Prologis shares, making the investment case all the more compelling for dividend-focused investors. But does it grow? Prologis has a 10-year dividend growth streak with an impressive 13% average annual dividend growth rate over the past five years. Its most recent dividend raise announced in February came in at 10%, showcasing solid growth metrics, especially for a REIT. That said, one downside is that during the 2008 recession, Prologis did cut its dividend, and the current payout has yet to recover from those pre-recession levels, so this is something to keep in mind. However, the e-commerce landscape in 2025 is vastly different from 2008, and while a recession would undoubtedly impact Prologis, I wouldn't foresee a dividend cut in the future recession. But as always, nothing is guaranteed. The dividend is a non-qualified payment issued quarterly in March, June, September, and December, currently paying $0.96 per share for a total annual payout of $3.84. If history is any guide, we can anticipate a potential increase with the next payment, estimated for March 31st, continuing the consistent pattern of dividend growth. The dividend makes up 88% of adjusted funds from operations for the last 12 months, and is projected to be 84% over the next 12 months. While this payout ratio might be slightly elevated, it's not alarming, especially for a REIT. The higher ratio reflects a minor drop in adjusted funds from operations per share, which historically trends upward at a steady rate, and I believe this is going to revert to the mean as the industry stabilizes. According to SimpliSafe Dividends, Prologis has a dividend safety score of 61, rated as safe, meaning a dividend cut is unlikely. This rating was reaffirmed as of October 30th, 2024. On the debt side, Prologis has a net debt to EBITDA of 5.11, slightly on the high side, however, it's trending in the right direction and is currently the lowest it's been in 10 years, so kudos to Prologis for that achievement. Additionally, their net debt to capital ratio of 36% can be considered low for an industrial REIT, reflecting a relatively conservative balance sheet for this sector. This positive debt management adds to the appeal of Prologis as a strong, stable choice in the industrial REIT space. Wall Street analysts have an average annual price target of $128.71 for Prologis, which would represent a 24.25% upside from where shares are trading today. This could be another indicator that right now might be a good time to get into this industrial REIT powerhouse. It's that dominance in their industry that gives Prologis an edge as an investment choice, I think. I especially like the potential to lock in that much higher than average starting yield. So in my opinion, Prologis is one of the best REITs to buy and hold in 2025. What about you? Do you own any stocks in the industrial REIT space like Prologis? I do know that Stagg Industrial is another popular choice with dividend investors. Let me know down in the comments, what REITs are you buying in the year 2025 for your portfolio? Now let's move on to that next REIT. Our next REIT for 2025 is Agri Realty Corporation, ticker ADC. It's a real estate investment trust that specializes in retail properties leased under the triple net lease structure. This means that Agri Realty's tenants are responsible for paying most of the property operating expenses, including taxes, insurance, and maintenance costs. It's a great model for a REIT as it provides stable and predictable cash flow with minimal overhead for the landlord. Agri Realty has carved out a strong presence in the retail real estate space with a diverse portfolio of properties across the US. They focus on high-quality, long-term net lease properties that cater to leading national and regional retailers. With a strategy centered on growth and sustainability, ADC has consistently delivered solid returns to its shareholders, making it a strong contender for a long-term, income-focused investor. Let's take a closer look at what makes Agri Realty one of the top REITs to buy and hold in 2025. Some of their top tenants include Walmart, which makes up 6% of the portfolio, as well Over the last decade, Agri Realty has shown strategic foresight by significantly reducing its exposure to Walgreens, which at one point made up 30% of the portfolio in 2012, and now accounts for less than 1%. This careful management of tenant relationships speaks to the expertise behind the management of this company. Agri Realty has been outperforming the broader REIT sector, which is down a couple points, while ADC shares have risen about 9.5% from a year ago. Over the last 10 years, investors in Agri Realty have seen a total return of 210%, roughly five times the return of VNQ and the broader real estate market ETF. At the time of making this video, ADC is trading at a forward P to AFFO of 16.1, a nice dip from its 5-year historical average of 18.3. If the price to adjusted funds from operations were to recover to its historical norm, ADC could be trading between $70 and $85, signaling a potentially undervalued stock. If you look at the dividend yield, ADC is currently yielding 4.44%, well above its historical norm of 4%. If the yield were to revert to its mean, shares could be priced between $68 and $83, making this another indicator that this is an undervalued stock. So you've got a couple reasons to believe that Agri Realty could be a fantastic opportunity for long-term investors in 2025. Agri Realty has been a solid performer in the REIT space, featuring 11 years of consecutive dividend raises and 12 years without any dividend reductions. While they did cut their dividend in the 2008 recession, like many REITs, they recovered quickly. And now, more than 15 years later, their dividend is stronger than ever, with a 5-year average annual dividend growth rate of 6%. ADC pays a non-qualified dividend monthly at $0.253 per share, totaling $3.04 per share annually. The ex-dividend date falls at the end of the month, and dividends are paid on the 15th of each month. I personally own shares in this one, as you may know from following my channel's public portfolio. I love collecting those monthly dividends. Currently, the dividend makes up 73% of the last 12 months adjusted funds from operations, and is projected to take up 71% of the next 12 months AFFO. So over the last decade, ADC has done a stand-up job reducing this payout ratio from 78% in 2015, and they also continue to grow their AFFO, which bodes well for the future. SimpliSafe Dividends assigns a dividend safety score of 70 to ADC, rating the dividend as safe, suggesting a dividend cut unlikely. This was reaffirmed as of November 6th, 2024. On the debt side, ADC isn't overly leveraged, with a net debt to EBITDA of 4.8 and a net debt to capital ratio of 34%. This shows that the company is effectively managing risk. Further adding to the confidence in ADC's future growth, the average analyst price target is just over $80. This would represent 18% upside from where shares are today. So ADC could see another solid year of growth for its shareholders. When putting together this video, I was admittedly torn between featuring AgriRealty, or its more mature rival, Realty Income, ticker O. Realty Income might appeal to investors looking for a higher yield and perhaps more stability, while ADC stands out for those focused on dividend growth and capturing more upside potential. I believe most of you fit into that latter category, but both are excellent REITs, and I do own both myself. I also want to highlight an honorable mention in the REIT space, that is Veche Properties, ticker VICI. I did feature Veche in a video just last week, so if you're interested in learning more about that REIT, which I believe to be one of the best to buy and hold in 2025, as well as a couple other undervalued stocks, go ahead and click into this next video. Thanks so much for watching, and as always, keep investing.