Dividend-paying real estate stocks outperform as AI fears roil markets
As artificial intelligence fears spur sell-offs in the market, real estate investment trusts could be poised to shine. The S & P 500 tumbled more than 1% on Monday as concerns over AI disruption dragged down software stocks. The index is slightly negative for the year so far. However, the S & P 500 real estate sector is up more than 8% year to date. .SPLRCR .SPX YTD line The S & P 500 real estate sector vs. the S & P 500 year to date. Worries about AI upending a variety of sectors have kept the market under pressure in recent weeks. Even REITs had their turn earlier this month, with SL Green Realty , BXP and Hudson Pacific Properties tanking on fears over disruptions by artificial intelligence in the office space. Commercial real estate brokers like CBRE and Jones Lang LaSalle were also hit. However, the office sector is just a small slice over the overall REIT market, said BMO analyst John Kim. “Interest rates are most likely coming down,” Kim told CNBC. “If that happens, that is generally good for REITs in terms of earnings growth. It helps with cap [capitalization rate], which is what we use to value real estate assets. It helps on the attractiveness of dividend yields for REITs.” In fact, BMO is predicting 2026 is set up for a rebound for the sector in what it is calling a “REIT Redemption Tour.” In addition to any capital appreciation, REITs pay dividends. In January, timberland, diversified, specialty and data centers were the top performers, according to industry group Nareit. Office and residential fared the worst. “We take a look at REIT operations; they’ve been solid. We take a look at the balance sheets; they’ve been solid,” said Ed Pierzak, senior vice president of research at Nareit. “We’ve started to see this uptick in REIT transaction activity on the property side and we think that’s a huge plus. It’s really a potential signal that the broader [real estate] market may be getting into recovery as well.” Finding opportunity While REITs’ performance is improving, the sector still has a way to go — which means plenty of opportunities for investors, said BMO’s Kim. He’s predicting total returns of 17% for 2026. One area he likes is data centers. Despite all the excitement over artificial intelligence, it was one of the worst performing sectors within the REIT market last year. It had a total return of -14% versus the MSCI U.S. REIT Index’s 2.9% in 2025, Kim said in a January note. This year, data centers are among the best performing. However, Janus Henderson’s Greg Kuhl believes there is room to move higher. He expects data center growth to be among the best in the REIT universe. “The amount of spending on infrastructure for AI, that’s all basically good news for data centers,” said Kuhl, portfolio manager of the firm’s U.S. Real Estate ETF (JRE) . Both Kuhl and Kim prefer data center REIT Equinix , which has a 2% dividend yield. Equinix is one of BMO’s top REIT picks for 2026. The company is also among JRE’s largest holdings at around 9% of assets. “They had a record quarter of leasing, and they called out that they’re starting to see real demand from that type of customer — AI-inference driven type of demand, and the volumes were huge,” Kuhl said of Equinix’s recent fourth-quarter results. EQIX 1Y mountain Equinix one-year performance The company’s adjusted earnings before interest, taxes, depreciation, and amortization and adjusted funds from operations for the quarter fell short of the Street’s expectations, but its full-year guidance exceeded estimates. BMO also likes Digital Realty Trust in the data center space, noting that the company’s portfolio remains well-positioned to sign large leases in multiple markets over the next few quarters. Meanwhile, Prologis is the top holding in JRE. It is an industrial REIT that is also developing a data center business, Kuhl pointed out. That data center buildout is underappreciated by the market and its core business is seeing improvement as demand picks back up, he said. Within health care, senior housing REITs stand out thanks to the aging population and limited supply. Welltower is among BMO’s top REIT picks for 2026 and the stock holds the second highest position in the JRE, making up nearly 12% of assets. The stock pays a 1.4% dividend yield. “If the industry is 90% occupied right now, your demand grows 5% a year, supply grows zero, the industry is full pretty quickly,” Kuhl said. “That’s a good place to be as a landlord.” WELL 1Y mountain Welltower one-year performance The company has the most exposure to senior housing and has been the leader in deploying AI within its business, he said. “The amount of data that they track helps them in a lot of ways,” Kuhl said. That could mean helping identify acquisitions and choose operators to run buildings, he added. “We’re starting to see the beginnings of that driving growth for them above and beyond what the overall industry can do,” he said.
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