Zacks Investment Ideas Highlights: The Vanguard Real Estate ETF, EastGroup Properties and Gladstone Land


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Chicago, IL – March 31, 2022 – Zacks Investment Ideas today features The Vanguard Real Estate ETF VNQ, EastGroup Properties, Inc. EGP and Gladstone Land Corp. LAND.

Will REITs continue to rise during interest rate hikes?

While real estate investment trusts (REITs) have had a tough start to the year along with the broader market, these lucrative investment vehicles continue to be a great way to balance portfolios while gaining exposure to the real estate sector. Adding these inflow-generating investments can result in significant benefits over traditional real estate investing, including increased liquidity, greater diversification, tax benefits, and potentially higher returns with lower risk.

Real estate investment trusts own or manage income-producing real estate, normally by investing directly in properties or mortgages on those properties. The IRS stipulates that REITs must pay 90% of their taxable income to shareholders. This typically results in much higher dividends than your average S&P 500 stock. One of the best ways to increase returns when investing in REITs is to compound the dividends received. Investors can also choose to use a dividend reinvestment plan (DRIP), which automatically reinvests dividends received in additional shares.

Investors have the option of buying REITs directly or can choose to diversify further by investing in REIT ETFs or mutual funds. The Vanguard Real Estate ETF is an example that invests heavily in REITs and prides itself on being ranked #1 by Zacks ETF (Strong Buy). VNQ invests in a variety of REITs and has outperformed the broader market over the past year with a return of nearly 20%. The Vanguard Real Estate ETF offers high potential for investment income as well as growth.

REITs not only offer above-average returns, but also the potential for future price appreciation. With interest rates historically low for many years, investors have turned to vehicles like REITs when looking for ways to increase yield. But given recent chatter surrounding future higher-than-expected interest rate increases, a potential problem for REIT investors is their interest rate sensitivity.

We looked at six different historical periods over a 30-year period in which interest rates rose, as measured by the yield on 10-year Treasury bills. During these periods of rising rates, REITs generated positive returns in four of them, while outperforming the general stock market in three of them. Our research shows that a rising interest rate environment does not translate into lower REIT prices. This is mainly because during economic expansions the value of the underlying real estate increases.

Although REIT prices can react to changes in the interest rate outlook in the short term, over longer periods there is generally a positive correlation between rising rates and REIT returns. A stronger economic environment normally results in higher occupancy rates, increased NOI (net operating income) and increased property values. All of these lead to higher dividend payouts for REIT investors.

Now that we’ve established that REITs can outperform even in rising rate environments, let’s take a look at two REITs with healthy prospects that are outperforming the broader market. These REITs are the two components of the VNQ ETF we mentioned above. Both companies are part of the Zacks REIT and Equity Trust – Other industry group, which currently ranks in the top 42% out of approximately 250 industries.

Investing in stocks in leading industry groups can provide a constant ‘tailwind’ to our investment success.

EastGroup Properties, Inc.

EastGroup Properties is a self-administered national REIT that acquires and operates industrial properties along Sunbelt’s core markets, primarily focusing on states such as Florida, Texas, Arizona and California. EGP’s portfolio includes both leased and under construction development and acquisitions and currently comprises approximately 45.8 million square feet. EastGroup Properties is headquartered in Mississippi and was founded in 1969.

EGP has a stellar record of earnings surprises, beating estimates every quarter for the past five consecutive years. Zacks Stock No. 2 (Buy), EGP recently reported Q4 EPS of $1.62, a surprise +2.53% from the consensus estimate of $1.58. The industrial REIT delivered a surprise four-quarter average profit of +3.24%, helping stocks rise nearly 44% over the past year.

Analysts have raised their earnings estimates for the current quarter by +1.89% over the past 60 days. Zacks consensus first-quarter EPS estimate now stands at $1.62, reflecting a potential growth rate of 11.72% over the same quarter last year. EGP is expected to announce quarterly results on April 26and.

Gladstone Land Corp.

Gladstone Land acquires and owns national farmland and related properties located in major agricultural markets. LAND leases its properties to third-party farmers. The company currently owns 127 farms in 13 different states. Gladstone Land was founded in 1997 and is based in McLean, Virginia.

Stock Zacks #2 (Buy), LAND has exceeded earnings estimates in each of the past two quarters. The publicly traded REIT recently reported fourth quarter EPS of $0.20, a surprise +5.27% from the consensus estimate of $0.19. LAND has averaged a +5.93% earnings surprise over the past four quarters, contributing to its 107.33% return over the past year.

Looking ahead to the rest of this year, analysts covering LAND have raised their full-year earnings estimates by +4% over the past 60 days. Zacks 2022 EPS consensus estimate now stands at $0.78, translating to potential growth of 16.42% over last year.

Be sure to keep an eye on these two REITs and how they are performing in this period of rising interest rates.

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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. To visit for more information on the performance figures displayed in this press release.

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EastGroup Properties, Inc. (EGP): Free Stock Analysis Report

Vanguard Real Estate ETF (VNQ): ETF Research Reports

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