I am going to recommend two real estate investment trusts (REITs) that I believe will outperform in terms of returns. Nvidia ( NVDA 1.67% ) In the upcoming 18 months, there will be a focus on specific REITs that are characterized by relatively mundane business models, even within the real estate industry.
Let me explain. I acknowledge that the value of Nvidia shares has almost tripled in just one year and has surged by an impressive 2,960% in the last five years. These significant gains are justified as Nvidia has played a crucial role in the advancement of artificial intelligence, and its strong sales performance has contributed to its success among investors.
Nevertheless, Nvidia is an industry leader. expensive The stock is being traded at a multiple of approximately 35 times its sales over the past 12 months and 43 times its expected earnings in the future. Despite its strong growth prospects, this valuation is considered high.
Furthermore, I anticipate that dividend-paying value stocks will gain momentum in the market over the upcoming years.
A decrease in interest rates could greatly benefit dividend-paying stocks.
Without delving too deeply into economic concepts, it can be said that decreasing interest rates typically have a positive impact on income-oriented stocks. REITs In simple terms, when the interest rates on safe investments such as Treasury bonds and certificates of deposit increase, it usually leads to an increase in stock dividends as well. As there is an inverse relationship between price and dividend yield, higher interest rates typically cause Real Estate Investment Trust (REIT) prices to decrease. falling-rate In contrast, the opposite holds true in the environment.
Moreover, REITs typically depend more on borrowed funds compared to other industries, and decreasing interest rates result in reduced expenses for borrowing.
Following lower-than-anticipated inflation figures and unsatisfactory job reports, the average investor anticipates a cumulative reduction of two percentage points in Federal Reserve rates by September 2025. This development has the potential to significantly boost undervalued REITs.
Two stocks that have the potential to experience significant growth in value.
I have approximately 10 different Real Estate Investment Trusts (REITs) in my investment portfolio, and I believe that all of them have the opportunity to perform well in a situation where interest rates are decreasing. However, there are two specific REITs that stand out as potential significant winners in this scenario. Government properties located in the eastern direction. ( DEA -0.37% ) and Vici Properties ( VICI 0.57% ) .
We will begin by discussing Easterly Government Properties. Just to be transparent, I do not currently hold any shares of this company, but I may consider investing in the future. In case you are not aware, Easterly Government Properties is a Real Estate Investment Trust (REIT) that possesses a collection of properties leased by a sole tenant, which is the United States government and its affiliated entities. The Department of Veterans Affairs (VA) is the primary tenant, while the Federal Bureau of Investigation (FBI) also occupies a significant portion of the properties in the portfolio.
The majority of Easterly’s assets are vital elements of the organizations that function within them, and consistently produce stable, increasing revenue annually. Easterly’s dividend yield is currently slightly under 8%, and its stock has declined by over 40% since the beginning of the rate-hike period in early 2022. However, extremely Easterly is a real estate investment trust (REIT) that is sensitive to changes in interest rates. Its consistent rental income gives it characteristics similar to a bond, and because Easterly relies heavily on debt, a decrease in interest rates could significantly boost its performance.
The occupants of Vici Properties are Vici is a Real Estate Investment Trust (REIT) that specializes in owning gaming properties, including famous Las Vegas Strip locations and other regional gaming assets. Vici’s primary business model involves leasing its properties to gaming operators under long-term lease agreements lasting 40 to 50 years. This arrangement provides Vici’s investors with steady and reliable income streams, making the company an attractive investment opportunity.
Similar to Easterly, Vici is highly sensitive to interest rates due to its stable income. However, Vici has a significant amount of available cash that can be used to grow its collection of experiential real estate assets in the coming years. A lower interest rate environment would be favorable for this expansion. The company’s management has already demonstrated success in enhancing value through growth, and there is potential for further growth in the future.
An audacious forecast
In clear terms, this is a confident forecast. I anticipate that both stocks will outperform the market until at least the conclusion of 2025. I also predict that Nvidia, after experiencing significant growth, may experience a slight slowdown. My reasoning is contingent on the Federal Reserve swiftly reducing interest rates; if this adjustment does not occur, my prediction could be inaccurate. Nevertheless, irrespective of short-term fluctuations, both Easterly Government Properties and Vici are stable, efficiently managed companies that have the potential to provide substantial profits and overall returns for investors with a long-term perspective.
