The stock market rallied after signs of decelerating U.S. inflation prompted bets that the Fed would now raise interest rates at a slower pace. However, according to Neel Kashkari, President of Minneapolis Federal Reserve Bank, the Fed is “far, far away from declaring victory” and needs to raise rates much higher — 3.9% by year-end and 4.4% by the end of 2023. 

The worries over the economy sliding into a recession due to the Fed’s continued rate hikes and the ongoing geopolitical tensions are expected to keep the stock market highly volatile.

Given the backdrop, we think it could be wise to invest in REITs that tend to benefit in an inflationary environment and pay handsome dividends. Here are five fundamentally sound REITs you may consider for generating passive income: Extra Space Storage Inc. (EXR), City Office REIT, Inc. (CIO), LTC Properties, Inc. (LTC), Getty Realty Corp.  (GTY), and Saul Centers, Inc. (BFS).

Extra Space Storage Inc. (EXR)

Headquartered in Salt Lake City, Utah, EXR, a self-administered and self-managed REIT, offers customers a wide selection of conveniently located and secure storage units across the country, including boat storage, RV storage, and business storage.

EXR’s $6 annual dividend yields 2.83% at its current share price. It paid its quarterly dividend of $1.50 on June 30, 2022. Its dividend payouts have increased at a 16.5% CAGR over the past three years and 12% over the past five years. The company has a record of 11 consecutive years of dividend growth.

EXR’s total revenues increased 25.4% year-over-year to $474.99 million in the fiscal quarter ended June 30, 2022. Core FFO per share came in at $2.13, up 29.9% year-over-year, while its EPS stood at $1.73, up 38.4% from its year-ago value.

Street expects EXR’s revenue for the fiscal quarter ending September 2022 to come in at $414.33 million, indicating a 17.9% year-over-year increase. Its FFO per share is expected to improve 15.3% year-over-year to $2.13. The company beat the consensus FFO per share estimates in each of the trailing four quarters.

Over the past month, the stock has gained 26.9% to close the last trading session at $211.96.

EXR’s fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

EXR is rated B in Momentum, Growth, Sentiment, and Stability. Within the REITs - Industrial industry, it is ranked #2 of 20 stocks. Click here to see additional POWR Ratings for Value and Quality for EXR.

City Office REIT, Inc. (CIO)

CIO invests in high-quality office properties in 18-hour cities that have strong economic fundamentals, primarily in the Southern and Western United States.

On June 15, CIO announced the completion of its sale of the Lake Vista Pointe property in Dallas, Texas, for a gross price of $43.8 million. The disposition represents a gain of $22 million, which makes the company’s total gain reach $570 million from its ten dispositions to date. This demonstrates CIO’s robust cash flows.

CIO’s $0.80 annual dividend yields 5.93% at its current share price. It paid its quarterly dividend of $0.20 on July 22, 2022.

CIO’s rental and other revenues increased 13.8% year-over-year to $45.50 million in the fiscal quarter ended June 30, 2022. Operating income came in at $9.35 million, up 20.4% year-over-year, while its net income grew 65.4% from the year-ago value to $3.06 million. The company’s net income per share stood at $0.02 in the same period.

Analysts expect CIO’s revenue for the fiscal quarter ending December 2022 to come in at $44.68 million, indicating an increase of 12.6% year-over-year. Also, the company’s FFO per share is expected to grow 3.5% year-over-year to $0.37 in the same period.

CIO has gained 5.6% over the past month to close the last trading session at $13.49.

CIO's overall rating of B translates to a Buy in our POWR Ratings system. The stock has a B grade in Momentum, Value, and Growth. Out of the 14 stocks in the REITs - Office industry, CIO is ranked #2.

To get CIO’s ratings for Quality, Stability, and Sentiment, click here.

LTC Properties, Inc. (LTC)

LTC is a real estate investment trust (REIT) investing in seniors' housing and health care properties primarily through sale-leasebacks, mortgage financing, joint-ventures, and structured finance solutions.

The company’s $2.28 annual dividend yields 5.13% at its current share price. Its monthly dividend of $0.19 is payable on August 31, 2022. Its dividend payouts have increased at a 6.3% CAGR over the past three years and marginally over the past five years.

For the fiscal second quarter ended June 30, 2022, FFO attributable to common stockholders came in at $24.49 million, up 9.8% year-over-year. Its total revenues were $43.02 million, up 12.8% year-over-year, while its EPS came in at $1.36, up 195.7% year-over-year. Also, its operating income was $54.11 million, up 201.4% year-over-year.

LTC’s revenue is expected to be $161.80 million in 2022, representing a 4.2% year-over-year rise. The company’s FFO per share is expected to increase 7.3% year-over-year to $2.50 in the same period. In addition, it surpassed the Street FFO per share estimates in each of the trailing four quarters.

LTC has gained 13% over the past month to close the last trading session at $44.41.

It is no surprise that LTC has an overall B rating, which equates to a Buy in our proprietary rating system. It also has a B grade for Momentum and Sentiment. LTC is ranked #2 out of the 16 stocks in the REITs - Healthcare industry.

Click here to see the additional POWR Ratings for LTC (Growth, Stability, Value, and Quality).

Getty Realty Corp.  (GTY)

GTY, a leading publicly traded real estate investment trust in the United States, specializes in the ownership, leasing, and financing of convenience store and gasoline station properties.

GTY’s $1.64 annual dividend yields 5.41% at its current share price. Its quarterly dividend of $0.41 is payable on October 6, 2022. Its dividend payouts have increased at a 5.8% CAGR over the past three years and an 8.3% CAGR over the past five years. The company has a record of eight consecutive years of dividend growth.

For the fiscal quarter ended June 30, 2022, GTY’s total revenues increased 6.5% year-over-year to $41.18 million. Its net earnings grew 138% from the year-ago value to $30.68 million, while FFO for the quarter stood at $39.85 million, reflecting an 80.8% increase year-over-year. The company’s net earnings per share increased 128.6% year-over-year to $0.64.

Street expects GTY’s FFO per share for the fiscal quarter ending September 2022 to improve 2.7% year-over-year to $0.49. The consensus revenue estimate of $41.39 million for the same period represents a 4.4% increase year-over-year. The company also surpassed the consensus FFO per share estimates in three of the trailing four quarters, which is impressive.

The stock has gained 13.4% over the past month to close the last trading session at $30.30.

The company has an overall rating of B, translating to Buy in our proprietary rating system. GTY also has a B grade in Sentiment, Stability, and Momentum. It is ranked #3 of 33 stocks in the REITs - Retail industry.

Click here for additional POWR Ratings for Growth, Value, and Quality for GTY.

Saul Centers, Inc. (BFS)

BFS is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 60 properties.

BFS’ $2.36 annual dividend yields 4.69% at its current share price. It paid its quarterly dividend of $0.59 on July 29, 2022. Its dividend payouts have increased at a 2.6% CAGR over the past three years and 2.7% CAGR over the past five years.

BFS’ total revenue increased marginally from the prior-year quarter to $60.29 million in the fiscal quarter ended June 30, 2022. Net income for the quarter came in at $17 million, reflecting an increase of 5.4% year-over-year, while its FFO came in at $29.37 million, up 2.1% year-over-year. FFO per share stood at $0.78.

The consensus FFO per share estimate of $3.11 for the fiscal year ending December 2022 represents a 2.1% improvement year-over-year. The consensus revenue estimate of $244.69 million for the same period represents a 2.3% increase year-over-year.

BFS’ stock has gained 6% over the past month to close the last trading session at $50.32.

BFS has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade in Stability and a B in Momentum. It is ranked #4 in the REITs - Retail industry.

Beyond what is stated above, we’ve also rated BFS for Value, Sentiment, Quality, and Growth. Get all the BFS ratings here.

EXR shares were trading at $213.54 per share on Monday afternoon, up $1.58 (+0.75%). Year-to-date, EXR has declined -4.19%, versus a -8.98% rise in the benchmark S&P 500 index during the same period.

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

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