Real Estate investment trusts offer investors an opportunity to enter the real estate market without ever actually owning any property. REITs are very important in helping investors gain exposure to real estate in order to diversify their portfolio.
The basic benefits of REITS are that they offer high yields, diversification, tax advantages and liquidity. For most investors, liquidity is the biggest advantage as a stock in simply much easier to sell then a house.
In the current market environment, when interest rates continue to be under pressure, REITS become more attractive because of their higher yields.
The chart below shows one of the more popular REITs Simon Property Group (SPG – Analyst Report), which is a Zacks Rank #3 (Hold). Also shown is the Vanguard REIT ETF (VNQ – ETF report), which has a Zacks ETF Rank #2 (Buy). Over the last five years, both Simon Property and the ETF have outperformed the S&P 500, with Simon up a whopping 89%.
Now let’s explore four top ranked REITs that would be suitable for an investor looking to enter the space.
Realty Income (O – Snapshot Report) is a Zacks Rank #2(Buy) that is a self-administered and self-managed real estate company that deals in commercial real estate. It separates itself form most REITs by paying a monthly dividend instead of a quarterly dividend. The company is exposed to the retail sector, but is highly diversified, which takes away downside economic risk.
Realty has a market cap of $15 Billion and a Forward PE of 21. The company sports a Zacks Style Score of “A” in Momentum and has a dividend yield of 4.00%.
Earnings were earlier this month and the stock responded positively with a 7% move higher. While the bottom line came in slightly below the expectation, revenue beat with $263.7 Million coming in verse the $261 Million expected. Occupancy was up to 98.4% versus the 98.3%
The stock has performed very well as the company continues to grow the dividend. Unfortunately, the higher the stock goes the lower the yield. Any pullback makes the yield more attractive and investors should jump on stock if they get the chance.
Leave A Comment