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Broken down by industry, these five real estate stocks can be great ‘buy and hold’ REIT investments.
Finding growth and value in real estate stocks may be difficult, but it’s not impossible.
As the economy continues to rebound, there may be opportunities in the real estate stock market that have the momentum to grow in market value.
Real estate investment trusts (REITs) or real estate stocks are publicly traded real estate companies listed on a public exchange. REITs are a great avenue for building passive income and can help diversify your investment portfolio by holding a different asset class.
Real estate stocks invested across different industries and sectors over the long term can bode well for investors seeking higher yield as well as capital appreciation and preservation, key tenants of sound investing.
The pandemic resulted in some REITs underperforming compared with the overall market, but as the economy is slowly recovering, now may be the time to find good entry points to invest in these stocks at a favorable price. Here are the best real estate stocks that stand to perform well this year:
- Simon Property Group (ticker: SPG)
- Public Storage (PSA)
- Digital Realty Trust (DLR)
- American Tower Corp. (AMT)
- STAG Industrial (STAG)
Simon Property Group (SPG)
Dividend yield: 4.56%
Price: $112
Simon Property Group is a REIT that owns, develops and manages shopping, dining, entertainment and mixed-use properties. Its portfolio of properties is mostly made up of malls, outlets and shopping centers in the U.S., Europe and Asia. SPG has been steadily recovering from its March 2020 lows, showing room for more growth in market value as it’s already up more than 31% year to date. Despite the stock’s volatility, the REIT has strong liquidity and cash flow.
In its latest fourth-quarter 2020 earnings report, Simon had more than $8 billion of liquidity and $1.5 billion of cash on hand.
Overall, Simon has a stable balance sheet, holding more than $34 billion in total assets, as of Dec. 31, 2020, higher than its total liabilities of about $31 billion.
One of the basic qualities for any good real estate stock is a solid management team with true leadership and vision, says Aaron Halfacre, CEO at Modiv in Orange Country, California.
The CEO of Simon Property Group, David Simon, has taken numerous creative steps over the years, Halfacre says, citing the Washington Prime Group spinoff, buying into retailers and most recently announcing the formation of a special purpose acquisition company, or SPAC. “Simon has been a stalwart of the modern REIT era since its UPREIT transaction back in 1993 and has been one of largest market caps in the space for decades,” Halfacre says.
Public Storage (PSA)
Dividend yield: 3.45%
Price: $235
Public Storage is a REIT that owns and operates self-storage facilities offering spaces for lease for personal and business purposes. In fact, PSA is the world’s largest owner of self-storage facilities.
According to the company’s financial statements, it has equity interests in more than 2,500 self-storage facilities in more than 30 states in the U.S. PSA also has an international self-storage presence through its acquisition of Shurgard Self Storage SA, which owns self-storage units across Europe.
The market appears to be bullish on PSA’s attractive fundamentals. The company’s diluted earnings per share is $6.29, and its current price-earnings ratio is about 38, which is below the industry average of 66.
PSA has a dividend yield of 3.45%, which is above the market median of 2.5%. The company’s stable returns and strong financial position indicate that it may be a lower-risk investment that can provide a positive return on capital. According to data from Refinitiv, PSA’s growth rate over the last five years was 2% per year.
Digital Realty Trust (DLR)
Dividend yield: 3.37%
Price: $131
Digital Realty owns, develops and operates data centers, working with businesses that focus on a variety of industry segments like artificial intelligence, digital media, financial services and cloud software for domestic and international tenants.
This asset is in a competitive position as real estate that supports digital infrastructure is in demand, which will continue to spur global business growth for the company. For the past four consecutive quarters, DLR has seen positive revenue increases despite a challenging economy.
“At Sugi, we believe that Digital Realty Trust is a sleeping giant,” says Peter Zabierek, CEO and portfolio manager of Sugi Capital Management in Philadelphia. “Bookings remain strong across its product mix, and management remains positive on the forward outlook for demand and growth.”
During the pandemic, Digital Reality’s data centers were fully operational with no severe business disruptions. According to the company’s 2020 fourth-quarter earnings release, DLR signed new leases anticipated to generate $130 million of annualized GAAP rental revenue as well as renewal leases that make up $156 million of annualized GAAP rental revenue during the quarter.
It also reported an increase in its quarterly cash dividend of $1.16 per share, up by 4% in the fourth quarter.
This dividend increase is the 16th consecutive year DLR has raised its dividend to shareholders, which represents strength in the company’s business and financial health while it pursues growth opportunities and expands on a global scale. All these factors could point to an increase in the stock’s market value.
American Tower Corp. (AMT)
Dividend yield: 2.26%
Price: $210
American Tower Corp. may be one of the best real estate stocks for investors interested in 5G technology investments. This REIT is one of the largest global owners, operators and developers of communications real estate that derives its revenue from leasing out cell tower properties to telecommunication companies. AMT holds about 181,000 communication sites in its portfolio as of December 2020.
With the recent rollout of 5G and increase in data usage, this industry is anticipated to drive innovation in wireless communication networks through widespread connectivity, which could make it a great “buy and hold” investment.
Some of AMT’s customers include AT&T (T), Verizon (VZ) and T-Mobile US (TMUS). AMT has a market cap of $93 billion, and analysts estimate AMT’s market price to increase from its current value, citing its business model that provides infrastructure solutions to power 5G.
STAG Industrial (STAG)
Dividend yield: 4.5%
Price: $32
STAG Industrial is an owner and operator of industrial real estate. The company labels itself as the only “pure-play” industrial REIT in the entire industrial real estate market. This is significant because the U.S. industrial market has a total market size of more than $1 trillion, and currently, STAG only holds 0.5% of that market share, which shows massive growth potential for the REIT.
Many tenants have long-term leases.
STAG is uniquely positioned in the real estate stock market, offering a balance of income and growth.
“STAG, with its focus on single-tenant industrial, is the current hot sector, particularly when you compare it to the other ‘single-tenant’ or net lease REITs that also own retail and office,” Halfacre says.
STAG Industrial has a market cap of about $5 billion and owns more than 400 properties in more than 30 states. In the fourth quarter of 2020, STAG acquired 32 buildings. Its largest customer is Amazon.com (AMZN), which accounts for 3.8% of STAG’s business. Other top tenants include XPO Logistics (XPO), Eastern Metal Supply and FedEx Corp. (FDX).
Investors looking for a value REIT play may find it in STAG, which has a lower stock price than the other REITs on this list. This REIT is up about 10% year over year and has an attractive dividend yield suitable for income-oriented investors.
The company’s portfolio manages about 40% of e-commerce tenant activity, a powerful and growing market trend. STAG values diversification, with portfolio exposure across more than 45 industries and various geographic locations, helping to manage risk.
