3 Top Value Stocks to Buy in February

Value is in the eye of the beholder. How about the saying that some people's trash is other people's treasure? The fact that some investors see opportunities where other investors don't is what makes Wall Street work. Right now, more intrepid investors, particularly those with a value focus, will want to take a look at Realty Income (NYSE: O), Rexford Industrial (NYSE: REXR), and EPR Properties (NYSE: EPR). However, there are important differences between this trio of high-yield value stocks.

1. Realty Income is a slow and steady giant

Realty Income is not an exciting company and, frankly, never will be. It is just too large, with more than 15,400 properties and a focus on net lease assets (net leases require tenants to pay for most property-level operating costs). Add in an investment-grade-rated balance sheet for good measure, and the real estate investment trust (REIT) is basically built to be a core, long-term dividend holding. The company even trademarked the nickname "The Monthly Dividend Company," which speaks to the dividend frequency and the importance management places on the dividend. Notably, the dividend has been increased for three decades and counting at a compound annual rate of roughly 4.3%.

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The stock, however, is down roughly 30% from its pre-pandemic highs. That's largely a function of higher interest rates, which makes it more costly for Realty Income to finance property acquisitions. That's a legitimate concern, but long-term investors shouldn't get too caught up in this fact. Property markets have historically adjusted to interest rate changes in time. Realty Income's size and financial strength give it a leg up when it comes to raising capital to invest. So, even if the acquisition market is difficult, Realty Income is operating from a position of strength. If you can get comfortable with the idea that management will navigate the headwinds it faces, you should consider collecting Realty Income's very attractive 5.9% dividend yield.

2. Rexford Industrial is still growing rapidly

Rexford is an industrial REIT with a unique focus on the Southern California market. There is extra risk in this sharpshooter approach; most other industrial landlords try to diversify geographically. But here's the interesting thing: Southern California is one of the largest industrial property markets in the world, is a key gateway into the U,S., and has historically had powerful supply constraints. It is a very good market to focus on, if you want to focus on just one region.

The proof of how attractive Rexford's positioning is comes from the huge rental growth rates it achieves on expiring leases. In the third quarter of 2023, it was able to jack up rents by an average of 39% on those leases. That's a huge number, but it happens to be much lower than the 64% it achieved just one year earlier and the 88% from two years ago. Investors got a bit too excited at the start of the rent growth spike and now seem like they are, perhaps, a bit too pessimistic. That is highlighted by the fact that Rexford's price has fallen about 50% since its 2022 peak, pushing the dividend yield up near all-time highs of 4.1%.

A 4.1% dividend yield may not be large enough to attract high-yield investors, but adding in the double-digit annualized percentage dividend growth the REIT has achieved during the past decade should easily attract dividend growth investors. With a historically high yield and a steep stock price pullback, this dividend growth stock definitely looks like it has been tossed on the value rack despite operating a fundamentally strong business.

3. EPR Properties is working toward better days

EPR Properties is going to be a bit harder to love, and it will most likely attract more aggressive turnaround investors. There's a lot going on here, too, so it is a somewhat complex investment. The big negatives are the REIT's heavy focus on movie theater properties and a dividend cut during the coronavirus pandemic. But there's more to the story because all of the company's properties are experiential in nature, like movie theaters. During the pandemic, bringing people together in group settings was a terrible property niche to serve. However, from a long-term perspective, it is fairly attractive and protected in some ways from the shift toward online life.

Still, during the pandemic, most of EPR's tenants were shut down because they weren't necessary businesses. It suspended the dividend for a while to ensure it had the liquidity to survive and help its tenants endure the pandemic headwinds. Once the worst was past, the dividend was reinstated at a lower level. The company has redoubled its efforts to diversify away from movie theaters. Theaters still make up a little more than a third of the company's rents, so there's more work to do. However, the other two-thirds or so of the business is in better shape today than it was before the pandemic, highlighted by rental coverage of 2.6 times EPR's rental costs versus 2 times in 2019. Meanwhile, the adjusted funds from operations (FFO) payout ratio was a reasonable 66% in the third quarter of 2024, leaving ample room for adversity before there would be a risk of another dividend cut.

If you have a glass-half-full attitude, EPR's huge 7.3% dividend yield could be right up your alley. Just go in knowing that this is a multiyear effort, and you shouldn't expect the stock to suddenly regain the 35% loss it has been sitting on since the pandemic began.

Plenty of REIT options if you like cheap stocks

Realty Income is a high-yield value stock for investors who prefer to avoid high-risk investments. Rexford's regional focus is higher risk, but the history of dividend growth is hard to ignore. And EPR is a turnaround story that is playing out. It is unlikely that one investor will find all three attractive, but this trio of down-and-out REITs highlights that there are value opportunities today for all sorts of investors.

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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends EPR Properties and Rexford Industrial Realty. The Motley Fool has a disclosure policy.