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 CubeSmart (NYSE:CUBE) 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.
Also read: 11 Best REIT Stocks To Buy Under $10
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 row of self-storage units in a self-storage complex, showing the affordability and security offered by the company.
CubeSmart (NYSE:CUBE)
Number of Hedge Fund Holders: 26
CubeSmart (NYSE:CUBE) invests in self-storage facilities across the US. In the third quarter, trends continued as the company navigated a competitive environment for new customer rental rates while existing customers remained resilient. The company is currently under contract to acquire two stores—one in Oregon and one in Pennsylvania—for a total purchase price of around $22.0 million. These acquisitions are expected to close in the fourth quarter of 2024. CUBE has surged by nearly 11% in the past 12 months.
CubeSmart (NYSE:CUBE) generated nearly 271 million in revenues in the third quarter of 2024, which showed a 1.1% growth from the same period last year. The revenue also beat analysts’ estimates by $1.40 million. The company added 24 stores to its third-party management platform, bringing the total number of third-party managed stores to 893. It also has agreements with developers for the construction of self-storage properties in locations with high barriers to entry. As of September 30, 2024, the company had two joint venture development properties under construction. The total investment for these projects is expected to be $36.9 million, with $9.1 million already invested by that date. Both properties are located in New York and are expected to open in the third quarter of 2025.
CubeSmart (NYSE:CUBE) currently offers a quarterly dividend of $0.51 per share. The company maintains a 15-year track record of consistent dividend growth, which makes it one of the best REIT dividend stocks. The stock has a dividend yield of 4.39%, as recorded on December 12.
According to Insider Monkey’s database of Q3 2024, 26 hedge funds held stakes in CubeSmart (NYSE:CUBE), up from 23 in the previous quarter. The total value of these stakes is more than $217.6 million. Diamond Hill Capital owned the largest stake in the company, worth over $131.3 million.
Overall CUBE ranks 7th on our list of the best REIT dividend stocks to buy for 2024. While we acknowledge the potential of CUBE 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 CUBE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
