With interest rates likely to remain low for the foreseeable future, savvy investors are looking for alternative income sources. That's where one of the best REITs to buy in 2020 comes into play.
On Dec. 11, 2019, the Federal Open Market Committee ended the year with a policy pause after three interest rate cuts.
The FOMC elected to keep the federal funds target range between 1.5% and 1.75%, pointing to the sustained expansion of economic activity, inflation near the target 2% objective, and a strong labor market.
This is excellent news as the markets continue with the longest economic expansion in U.S. history. Still, investors that rely on higher rates for things like bond yields will need to look elsewhere for reliable income sources.
Anyone tied to a fixed income is going to be in a bind if the yield on their 10-year bond suddenly drops to less than 2%. It's simply not a sustainable income model.
A better choice is a real estate investment trust (REIT).
The best REITs are alternative investments that deliver significant and steady income. This is thanks to their income from leases, share price appreciation from a strong real estate market, and favorable tax treatment for owners.
And the best REIT to buy today has been expanding at an impressive clip.
In fact, this is one of the largest publicly traded REITs in the United States, which operates in some of the country's highest-growth markets.
Plus, this pick for one of the top REITs to buy now pays a 5% yield and has a potential 50% upside over the next 12 months.
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Our top REIT pick for 2020 is Brandywine Realty Trust (NYSE: BDN).
Founded in 1994, BDN is a Philadelphia-based REIT that operates in markets all across the United States. More specifically, the firm develops, builds, and manages some of the country's most remarkable mixed-use and Class A office properties.
About 93.2% of the company's core portfolio is occupied, and there are full leases signed for 95.5% of the property. The retention rate for BDN is strong at 72%, but improvements in this figure can boost cash and the company's share price.
Three of BDN's strongest high-growth markets include Washington, D.C.; Austin, Texas; and Philadelphia, Pa.
Thanks to a boost in government spending and greater demand for housing in D.C., there has been massive growth in the nation's capital. Plus, over the last decade, both Philadelphia and Austin have steadily grown as well.
U.S. News and World Report listed Austin as one of the top-ranking places to live in the United States. And people are flocking to it. For the ninth year straight, an additional 50,000 people will move into the area.
At the same time, venture capital activity in Philadelphia topped over $1.8 billion in 2018 as an increasing amount of snake people and graduates moved into the area. Since 2008, Philadelphia has experienced the largest growth rate of residents with advanced degrees of all the metropolitan areas.
Philadelphia now accounts for 74% of BDN's net operating income. BDN's large portfolio of properties in this city presents it with significant opportunities moving forward as well.
The firm is the master developer of a massive real estate project that promises to transform the city. BDN is developing Schuylkill Yards, a 14-acre site in West Philadelphia that will consist of 5.1 million square feet of residential, office, retail, hospitality, life sciences, and academic space.
The location is next to the third busiest rail station in the country. Investors expect that businesses will be vying for space in Schuylkill Yards for two reasons. First, it has easy access due to the rail station. Second, the project is located in an opportunity zone.
The opportunity status means the project is going to get federal incentive to attract long-term investors that can forgo capital gains taxes with their contributions.
We've zeroed in on BDN by using the Money Morning Stock VQScore™.
This is a proprietary system that allows us to analyze thousands of companies at once. Through a combination of various technical elements and key fundamentals, one of which is the stock's price/earnings to growth ratio, the VQScore will give each company a rating of 0 to 4.9.
A higher score is better and means that the company has the best chance of producing breakout gains.
BDN's score is 4.6, which is considered to be in the "Strong Buy Zone."
Not only does BDN pay investors a 5% dividend, but its stock also offers strong upside to investors.
It is currently trading at $15.42 per share. Given the outlook for the markets in 2020, this stock could easily hit $23 per share over the next 12 months.
So, not only does BDN have a perfect VQScore - and a solid dividend yield - but it could also soar as much as 50% over the next 12 months...
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