The iShares Dow Jones US Real Estate Index Fund ETF (IYR) has been running in place in a narrow range pattern since topping out in 2015, paying out healthy dividends while awaiting more favorable business and interest rate conditions. However, top real estate investment trust (REIT) performers have shaken off this lethargy, posting new highs by taking advantage of hot local markets and/or favorable industry sub-groups.
It's a relatively simple task to find these superior plays by sorting a list of fund components by relative positioning compared to the 200-day exponential moving average (EMA). Industry leadership rises to the top of this sorted listing, allowing the technician or investor to review price structure for long- or short-term profit potential, as well as low-risk entry levels. A final step then considers dividend history, looking for the most potent combination of trend and yield.
Medical Properties Trust, Inc. (MPW) handles net lease health care properties while paying a 5.51% forward annual dividend yield. It topped out at $16.70 in 2007 following a multi-year uptrend and crashed to an all-time low at $2.76 during the 2008 economic collapse. The subsequent recovery wave completed a round trip into the prior high in 2013, but a breakout failed, reinforcing resistance in the mid-teens. A 2016 breakout attempt also failed, but price action finally reached an all-time high in January 2019.
The REIT eased into a consolidation pattern in February, absorbing overbought technical conditions after the breakout, and it has now bounced to range resistance at $18.60. A rally above this level should underpin buying interest that may track the blue rising highs trendline, targeting the low $20s. The on-balance volume (OBV) accumulation-distribution indicator has also lifted to an all-time high, offering a stiff tailwind for the developing uptrend.
UDR, Inc. (UDR), a multi-family property builder, pays a 2.89% forward annual dividend yield. A multi-year uptrend topped out at $34.10 in 2007, giving way to a brutal decline that found support at an 18-year low in the single digits in March 2009. A bounce into the new decade stalled in the mid-$20s, requiring four more years to complete a round trip into the prior high. A 2016 breakout failed to generate buying interest, yielding a shallow uptick into 2017.
The REIT broke out above the 2017 high in November 2018, tested new support into January and took off in a strong advance that stalled in the mid-$40s. Price action has eased into a narrow consolidation pattern in the past month, with a rally above $45.50 likely to generate additional upside that could reach the low $50s. OBV is holding at a new high, indicating that new shareholders are building positions.
W. P. Carey Inc. (WPC) handles more than 1,000 net lease commercial properties and pays a healthy 5.53% forward annual dividend yield. It topped out in the mid-$30s in 2002 and failed multiple breakout attempts until 2011, when the company entered a powerful trend advance that stalled at $79.34 in 2013. It sold off to $51.12 in 2016, while price action into this year has been contained within those boundaries.
A 2015 bounce stalled at $73.05, while 2016 and 2017 rallies failed to pierce that stubborn resistance level. Committed buyers came to the rescue in October 2018, lifting the stock to a five-year high near $76 in February. That buying surge mounted the .786 Fibonacci retracement level of the decline that started in 2013, setting the stage for a long-awaited test at 2013 resistance. Massive accumulation in the past five months predicts that the effort will succeed, opening the door to the triple digits.
The Bottom Line
Top-tier REITs are trading at or near new highs, perfectly positioned for long-side exposure.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.