2 High-Yield REIT Picks to Capitalize on Imminent Fed Rate Cuts

The latest Consumer Price Index (CPI) report has sparked optimism, revealing consumer prices rose 0.2% in July, meaning the index held steady from June at 2.7%. This was milder than anticipated, but core CPI inflation rose more — 0.3% — bringing the core rate up to 3.1%. 

Still, this has fueled momentum for anticipated Federal Reserve interest rate cuts in September, with investors increasingly confident in a more accommodative monetary policy. However, the Producer Price Index (PPI), which measures wholesale prices, released this morning, showed a surprising 0.9% monthly increase, far more than the expected 0.2%. This suggests businesses are absorbing higher costs rather than passing them to consumers. 

While this could signal future price pressures, the CME Group’s FedWatch tool indicates only a slight dip in rate cut expectations 92.5% versus 94.3% yesterday), with a 50-basis-point cut still favored at a 65% probability. 

Lower interest rates typically benefit real estate investment trusts (REITs), which struggle under high borrowing costs due to their debt-heavy structures. As rate cuts loom, two REITs stand out as prime investment opportunities today.

VICI Properties (VICI)

VICI Properties (NYSE:VICI) was formed in 2017 as a spin-off from Caesars Entertainment (NASDAQ:CZR) and is a leading experiential REIT specializing in casino and entertainment properties. 

Its portfolio includes iconic Las Vegas assets like Caesars Palace, MGM Grand, and Venetian Resort, alongside regional gaming venues. VICI’s triple-net lease structure, where tenants cover taxes, insurance, and maintenance, ensures stable cash flows, shielding it from economic volatility. 

Over the past three years, VICI’s total return is approximately 9.3%, driven by consistent dividend growth and strategic acquisitions, such as the 2023 purchase of 38 Bowlero bowling centers for $432 million. 

Its annual dividend is currently $1.73 per share, yielding 5.3%, with an 8% annualized dividend growth rate over the past five years. Year-to-date, VICI’s stock is up over 12%, supported by robust rental income. 

VICI’s focus on the resilient gaming sector and long-term leases has helped it navigate high-rate environments. Anticipated rate cuts could lower borrowing costs, enabling further acquisitions, dividend hikes, and stock price appreciation, positioning VICI stock as a compelling buy for investors seeking reliable income and capital gains.

Realty Income (O)

Realty Income (NYSE:O) has operated since 1969 and is a retail REIT known as “The Monthly Dividend Company” because it championed monthly dividend payments that so many other REITs now offer. 

It owns over 15,000 properties across retail, industrial, and gaming sectors. Its tenants, including Walgreens (NASDAQ:WBA), Dollar General (NYSE:DG), and 7-Eleven, operate under long-term, triple-net leases, ensuring predictable income. 

Since August 2022, Realty Income’s stock has lost about 9% on a total return basis (the stock price is down over 22%) as rising interest rates have increased borrowing costs and pressured margins. However, year-to-date, its stock has gained 8%, driven by resilient rental income and a 5.5% dividend yield. Realty Income’s annual dividend of $3.19 per share, paid monthly, has increased for 30 consecutive years, with a 3.9% annualized growth rate over the past five years. 

Its scale and tenant diversity have sustained performance despite high rates. With 661 consecutive monthly dividends paid, Realty Income is poised for stronger growth as anticipated rate cuts reduce debt servicing costs, freeing capital for acquisitions and further dividend increases. This makes it an attractive investment for income-focused investors ahead of the Fed’s potential policy shift.

Key Takeaways

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