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How do you select the best REITs from the more than 200 available? The answer is that you need to have selection criteria. Armed with that criterion, you may use a stock screener to quickly find the game you are looking for.
The quickest way of finding equity REITs is by using a stock screener. I have used the stock screener from the website www.stockanalysis.com. There is no need pay for fancy screeners that cost you hundreds of dollars per month in subscription fees. Then click or tap on the blue button named filter. You will immediately be provided with list of metrics to use for selecting stocks. You can filter them by the following metrics.
One cool feature in stockanalysis.com is the ability to only show equity REITs in the stock screener tab. Use this as your first filter.
Market cap > $300 million
Market capitalization tells you the size of stock or the value of company as perceive but the market. Selecting stocks with market caps above $300 million means you will include only stocks with relatively long track records and high liquidity. Most importantly, you will avoid investing in penny stock.
Debt to equity ratio < 2.5%
REITs extensively use financial leverage to equity real estate assets. The lower the debt a REIT that have less than twice the investor equity in debt. The lower this ratio, the better the REIT. The REIT is more likely to cover debt repayments.
Dividend yield > 3%
As stated elsewhere, investing in high yield REITs is paramount. The higher the dividend yield, the better the dividend you receive, thereby boosting your income faster. That is why we want to invest in these assets in the first place.
Net income growth > 5%
The higher the growth of a REITs net income, the higher the fund from operation should be.
