The setup is ‘compelling’ for these two real estate stocks, Wolfe says – and they pay big dividend yields

Despite recent underperformance in the broader real estate sector, Wolfe Research highlights office REITs as a potentially promising area, with the S&P 500's office REIT sub-industry group up over 5% in May. COPT Defense Properties and Highwoods Properties are specifically mentioned as having compelling setups; COPT Defense is approaching its 200-day moving average with analysts forecasting significant upside, while Highwoods Properties is nearing its 200-day moving average and benefiting from migration trends in the Sunbelt region.

Analysis

The broader real estate sector demonstrated lackluster performance in May, advancing only approximately 0.9% compared to the S&P 500's over 6% gain, a period marked by volatility in longer-dated Treasurys where rising yields typically pressure real estate investments by increasing borrowing costs. In contrast, Wolfe Research highlights the office REIT sub-industry as a potentially promising segment, noting it was up over 5% in May, its first positive month in 2025, signaling a potential turnaround after months of underperformance. COPT Defense Properties (CDP) is singled out for a "compelling setup," with Wolfe Research suggesting a break above its $29 200-day moving average (current price $27.56) could target its November high of $34. Despite CDP shares being down over 11% in 2025, the company pays a 4.4% dividend yield and recently increased its quarterly dividend by 3.4%, a move Wedbush attributed to results "beating essentially every guidance building block." Wall Street consensus reflects a buy/strong buy rating with a 15% upside potential, and the stock carries a positive sentiment score of 0.7. Highwoods Properties (HIW), focused on Sunbelt markets, is another name highlighted by Wolfe, with its $30.50 200-day moving average (current price $30.31) seen as a key level; surpassing this could open a path to the high $30s. HIW offers a 6.6% dividend yield and its stock is down about 1% in 2025. While Mizuho maintains a Neutral rating on HIW due to execution risk, it acknowledges a promising FY26-27 outlook driven by Sunbelt migration and potential for mid-single-digit cash flow growth, though the analyst consensus foresees only 1% upside, reflected in its more neutral sentiment score of 0.1.

Key Decisions for Investors

• Investors should assess opportunities within the office REIT sub-sector, which is showing signs of recovery and potential outperformance as highlighted by Wolfe Research, contrasting with the broader real estate market's recent weakness.
• For COPT Defense Properties, closely monitor its ability to surpass the $29 200-day moving average, as this technical break could validate positive analyst sentiment, its recent dividend increase, and signal further appreciation potential despite its year-to-date decline.
• Regarding Highwoods Properties, investors should weigh its attractive 6.6% dividend yield and exposure to growing Sunbelt markets against a more cautious analyst consensus and noted execution risks, with a breach of its $30.50 200-day moving average being a key technical indicator to watch.
• It is crucial to maintain vigilance on 10-year Treasury yield movements, as these directly influence borrowing costs and investment returns across the real estate sector, thereby impacting the viability of investments in office REITs like CDP and HIW.