Real estate investment trusts suffered through a brutal two-year stretch as the Federal Reserve aggressively raised interest rates from 2022 through early 2024. Higher borrowing costs made property acquisitions more expensive while creating headwinds for tenants facing their own financing pressures. Meanwhile, REIT dividend yields lost their appeal as investors could earn 5%+ from risk-free CDs and Treasury bills.
The environment has reversed. The Fed cut its benchmark rate six times between 2024 and 2025, and expectations for additional easing have made income-generating REITs attractive again. Lower rates reduce acquisition costs for property purchases while easing pressure on tenants. Perhaps more importantly, as Treasury yields compress, REIT dividends offering 5-6% yields become comparatively more compelling than they were when competing against elevated risk-free rates.
This shifting interest rate backdrop creates opportunity in high-quality REITs with defensive tenant bases, strong balance sheets, and proven ability to maintain occupancy through economic cycles. Three REITs stand out for their combination of attractive current yields, dividend growth track records, and positioning to benefit as the rate-cutting cycle continues.
Realty Income Corporation (O) operates as one of the world’s largest REITs with over 15,500 commercial properties spanning the United States and Europe. Currently trading around $61 with a 5.3% forward dividend yield, the company has earned its “Monthly Dividend Company” nickname through 132 consecutive dividend increases since its 1994 IPO. This remarkable track record demonstrates management’s commitment to shareholder returns through multiple economic cycles and interest rate environments.
Realty Income focuses on recession-resistant retail tenants including drugstores, discount stores, and convenience stores. The top three tenants—7-Eleven, Dollar General, and Walgreens—operate businesses that demonstrate defensive demand characteristics even during economic downturns. Consumers still need to fill prescriptions, purchase essential goods, and fuel vehicles regardless of GDP growth rates. This tenant mix has enabled Realty Income to maintain occupancy rates above 96% since going public, with the most recent quarter showing 98.7% occupancy despite retail industry challenges.
The triple-net lease structure provides additional stability by requiring tenants to cover maintenance fees, insurance, and property taxes. This arrangement shifts operating cost risks to tenants while providing Realty Income with predictable cash flows measured through adjusted funds from operations (AFFO). Management expects 2025 AFFO per share of $4.25-$4.27, representing 1-2% growth that comfortably covers the forward dividend rate of $3.22.
At current levels around $61, Realty Income trades at just 14 times trailing AFFO—a reasonable valuation for a REIT with this quality profile and dividend consistency. The combination of 5.3% yield, monthly distributions, decades of dividend growth, and defensive tenant exposure makes Realty Income a core holding for income-focused portfolios seeking stability.
Vici Properties Inc. (VICI) pursues a completely different strategy as an experiential REIT owning 93 casinos, resorts, and entertainment properties across the United States and Canada. Currently trading around $29 with a 6.1% forward yield, Vici serves tenants including Caesar’s Entertainment, MGM Resorts, and Penn Entertainment—operators vulnerable to macroeconomic headwinds as discretionary consumer spending fluctuates with economic conditions.
Despite this cyclical exposure, Vici has maintained 100% occupancy since its 2018 IPO through strategic lease structuring that creates powerful tenant retention. The company locks tenants into multi-decade leases, most of which are tied to the Consumer Price Index. This inflation linkage allows Vici to raise rents in step with CPI increases, providing natural protection against the inflation that erodes purchasing power of fixed-income investments. Casino and resort operators face substantial costs to relocate operations, creating switching costs that reinforce Vici’s long-term lease structures.
The triple-net lease arrangement transfers property-level operating expenses to tenants, further stabilizing Vici’s cash flows. This resilient business model has enabled consistent dividend growth since the IPO, with the company raising its quarterly payout every year despite operating through the pandemic period when casino visitation collapsed.
Management projects 2025 AFFO of $2.36-$2.37 per share, representing 4-5% growth that comfortably covers the forward dividend rate of $1.80. At $29, Vici trades at 16 times trailing AFFO per share—attractive valuation for a REIT with perfect occupancy, inflation-protected leases, and 6%+ yield. The experiential real estate focus differentiates Vici from traditional REITs while the long-term lease structures and triple-net terms provide income stability that contradicts the cyclical nature of casino operations.
Digital Realty Trust Inc. (DLR) offers exposure to data center infrastructure—a secular growth theme driven by cloud computing adoption and artificial intelligence workload expansion. Currently trading around $164 with a 3% forward yield, Digital Realty operates over 300 data centers serving more than 5,000 customers across 50+ metropolitan areas. The client roster includes over half the Fortune 500, with major tenants like IBM, Oracle, and Meta reflecting the mission-critical nature of Digital Realty’s infrastructure.
The company faced headwinds over the past four years as it divested older “non-core” data centers with limited growth potential to focus capital on higher-growth hyperscale facilities. This strategic repositioning, combined with elevated interest expenses and unfavorable currency impacts, pressured AFFO and led management to pause dividend increases.
However, the business appears to be stabilizing as divestments conclude and the portfolio optimization pays off. Management expects 2025 constant-currency core FFO to grow 8-9% to $7.25-$7.30 per share, easily covering the forward dividend rate of $4.88. Occupancy reached 82.9% in 2024, with projections for 100-200 basis point improvement in 2025 as new capacity fills with tenants.
Digital Realty benefits from powerful secular trends driving data center demand. Cloud infrastructure continues migrating from on-premise to third-party facilities. Artificial intelligence training and inference workloads require massive computational capacity housed in specialized data centers. High-performance computing applications across industries from financial services to pharmaceuticals demand reliable, scalable infrastructure. These trends should support multi-year demand growth for Digital Realty’s facilities.
The 3% yield appears modest compared to Realty Income’s 5.3% or Vici’s 6.1%, but Digital Realty offers growth characteristics that traditional REITs lack. The combination of 8-9% projected FFO growth, improving occupancy, and exposure to cloud and AI infrastructure buildouts creates potential for both dividend growth and capital appreciation. For investors seeking REIT exposure with tech-oriented growth drivers rather than just income generation, Digital Realty provides a balanced approach.
