As the S&P 500 experiences a downturn from its peak performance, investors focused on generating reliable dividend income may find compelling opportunities in select real estate investment trusts (REITs). The real estate sector has shown resilience in 2025, outpacing struggling sectors such as information technology and consumer discretionary, both of which face declines of over 10%.

Interest Rates and Real Estate Performance

According to Kevin Brown, a senior equity analyst at Morningstar, the current decline in the 10-year Treasury yield plays a significant role in the real estate sector’s relative strength. In January, the benchmark yield stood around 4.8%, but it has since dipped to approximately 4.27%. Brown noted, “When rates have come down, the real estate sector has outperformed. When they have gone up, the sector has underperformed versus the S&P 500.”

Understanding REITs: The Good and the Bad

Investors must recognize that REITs vary significantly across different subsectors. For example, healthcare-focused REITs, particularly those investing in senior housing, have shown substantial growth post-pandemic, benefiting from the aging population. In contrast, certain categories like self-storage REITs have seen a decline, moving from double-digit growth in net operating income (NOI) in 2022 to negative growth.

Top Picks for Investors

For income-oriented investors, Brown recommends three specific REITs to consider in today’s volatile market:

1. Realty Income: Known as the “monthly dividend company,” Realty Income boasts a solid track record of consistent and growing dividends, having increased its dividend for at least 25 consecutive years. It operates as a triple net lease REIT, meaning tenants are responsible for property taxes, insurance, and maintenance. Realty Income’s recent financials showed slightly lower-than-expected adjusted funds from operations (AFFO) at $1.05, but revenue exceeded projections, marking $1.34 billion.
2. Federal Realty: This REIT, with tenants including HomeGoods and Starbucks, yields 4.6% and has recently been favored by analysts, with 13 of 17 advising a buy or strong buy. Despite a 15% drop in 2025 shares, Federal Realty is pursuing new redevelopment projects in Hoboken, New Jersey, and Philadelphia, projected to return yields of around 7%.
3. Healthpeak Properties: Offering a dividend yield of 6%, Healthpeak Properties has maintained stable performance, with analysts generally recommending it as a buy. The REIT’s portfolio includes facilities crucial to pharmaceutical companies, which may continue to seek lab space even in a recession. Brown pointed out that while NOI growth may slow, such stability in uncertain markets becomes appealing.