Real Estate Stocks To Watch In 2022

Key Takeaways:


Real estate has proven it belongs in every diversified investment portfolio. Few asset classes, for that matter, have developed a better reputation for building wealth in any environment. Even despite what many consider to be an over-inflated housing market, homeowners can still capitalize on impressive investment returns.

According to ATTOM Data Solutions’ second-quarter 2021 U.S. Home Sales Report, “the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and $60,572 in the second quarter of 2020.”

However, it is worth noting that investors aren’t required to invest in physical real estate assets to enjoy the returns that have become synonymous with the housing market. Instead of enduring the lengthy process of securing a loan, shopping for a home, and everything else that’s associated with buying a house, investors may open a position in today’s best real estate stocks. Investors may partake in one of the most lucrative industries by tapping into the housing sector via the stock market, which begs the question: What are the best real estate stocks to buy?

In this article, we’ll discuss the benefits of real estate stock investment, as well as explore some of the most successful real estate stocks to watch in the coming years.

What Are Real Estate Stocks?

Real estate stocks are publicly traded equities that specialize in owning, operating, or financing income-producing real estate assets across a wide variety of property sectors. However, in their simplest form, real estate stocks are the equities classified under the Real Estate Sector on Wall Street. Therefore, any stocks that have been placed in the Real Estate Sector by the Global Industry Classification Standard (GICS) are considered real estate stocks.

To be clear, real estate stocks haven’t always had their own sector. A few years ago, “real estate stocks” were classified under the Financials Sector. However, real estate has performed so well in the past (and is expected to continue performing well in the future) that the GICS gave it its own sector.

According to the National Association of Real Estate Investment Trusts (NAREIT), “On Aug. 31, 2016, S&P Dow Jones Indices and MSCI moved stock-exchange listed Equity REITs and other listed real estate companies from the Financials Sector of their Global Industry Classification Standard (GICS) to a new Real Estate Sector.”

The move gave real estate stocks their own sector on the S&P Dow Jones Indices, the first move of its kind since 1999. The addition of a real estate sector reflected how big real estate had grown and established expectations for continued growth in the future.

Today, “The Real Estate Sector represents nearly 4.0 percent of the equity market capitalization of the S&P 1500,” according to the NAREIT. Of the equities considered to be real estate stocks, “Equity REITs make up about 98 percent of the equity market capitalization of the sector. Real estate management and brokerage companies make up the remainder,” says the NAREIT.

Real estate investment trusts are businesses that own, operate or finance income-producing real estate. To be considered an REIT, companies must also:

  • Pay at least 90% of its taxable income in the form of shareholder dividends each year.

  • Be structured as an entity that would be taxable as a corporation if it wasn’t for its REIT status.

  • Be managed by either a board of directors or trustees.

  • Have shares that are fully transferable.

  • Accumulate at least 100 shareholders within its first year of being recognized as an REIT.

  • Not have more than 50.0% of its shares held by five or fewer individuals during the last six months of a taxable period.

  • Invest at least 75.0% of its total assets between real estate and cash.

  • Receive at last 75.0% of its gross income from real estate-related assets.

  • Receive at least 95.0% of its gross income from rents, interest, financing, and dividends.

  • Not have more than 25.0% of its real estate assets consist of non-qualifying securities or stock in taxable REIT subsidiaries.

Representing the overwhelming majority of the real estate sector, REITs have become the preferred real estate equities amongst today’s investors. If for nothing else, REITs allow anyone to invest in the real estate market without buying physical real estate assets; that means investors can partake in the benefits which have become synonymous with real estate without having to buy real property.

Instead, REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other stocks on Wall Street: through the purchase of individual company shares.


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Best real estate stocks

Benefits Of Investing In Real Estate Stocks

The benefits of investing in real estate stocks are well documented. REITs, in particular, have done well for investors over several decades. In that time, investors have enjoyed several benefits, the likes of which include:

  • Build equity

  • Gain passive cash flow

  • Diversify an investment portfolio

  • Liquidity

Build Equity

Not unlike equities associated with other sectors on Wall Street, real estate stocks allow investors to build equity in the companies they choose to invest in. Each share purchased awards investors the ability to increase their equity in a given REIT through moderate, long-term capital appreciation. As REIT prices increase, so too will investors’ equity in a given company. More specifically, investors can expect REIT returns to resemble those of value stocks and more than the returns of lower-risk bonds. “Over a 15-year period, according to Cohen & Steers, actively managed REIT investors real­ized an annualized 10.6% return,” said the Wall Street Journal.

Gain Passive Cash Flow

One of the greatest benefits of investing in REITs is written directly into the requirements to be classified as an REIT. Specifically, REITs must pay at least 90% of their taxable income in the form of shareholder dividends each year. As a result, investors not only gain access to the potential for long-term capital appreciation but are promised a dividend on a predictable, recurring schedule. For every share of an REIT owned, investors will receive a percentage of the share price in the form of a monthly, quarterly, or annual dividend. According to Millionacres, “The average dividend yield for equity REITs is right around 4.3%. However, there are some high-dividend REITs out there that pay significantly more than average.” In fact, it’s the cash flow that makes REITs so attractive to retirement savers and retirees who require passive income to meet daily expenses.

Diversify An Investment Portfolio

Real estate investment trusts are themselves a way for investors to diversify their portfolios from other market equities. The addition of real estate stocks to a portfolio that consists primarily of all of the other sectors associated with the S&P 1500 Index will inevitably diversify holdings. In doing so, portfolios that consist of real estate stocks will ultimately perform in conjunction with one of the world’s largest industries.

If that wasn’t enough diversification, real estate stocks and REITs can be broken down even further. Real estate stocks can give investors exposure to a number of industries. REITs, in particular, can be broken down as follows:

  • Office REITs

  • Industrial REITs

  • Retail REITs

  • Lodging/Resort REITs

  • Residential REITs

  • Timberlands REITs

  • Health Care REITs

  • Self-Storage REITs

  • Infrastructure REITs

  • Data Center REITs

  • Diversified REITs

  • Specialty REITs

  • Mortgage REITs

In addition to ebbing and flowing with traditional real estate trends, each of these REITs allows investors to benefit from the individual, independent sectors that they cater to. Lodging and resort REITs, for example, will not only benefit in favorable interest rate environments, but they will also perform well during busy travel seasons.

Liquidity

Unlike physical real estate assets, real estate stocks are incredibly liquid. Whereas physical real estate assets can take months to sell, real estate stocks can be traded and sold on any brokerage in a matter of minutes — if not seconds. To gain access to the capital that each share represents, investors need to sell their shares. Depending on the specific brokerage the trade was made on, investors may have access to their cash in a very short period of time. On the other hand, physical real estate assets can’t be liquidated nearly as fast and often require the assistance of expensive, third-party representatives.

Best Real Estate Stocks To Watch

Real estate has proven to be a great wealth-building vehicle for patient and opportunistic investors. That said, not all real estate stocks are created equal. Like every other sector on Wall Street, real estate stocks are only as good as the company they represent. Therefore, investors need to be diligent in vetting the stocks they choose to add to their portfolios.

There are several real estate-centric stocks worth investing in, but the following list represents some of the best real estate stocks to watch moving forward:

  • Simon Property Group, Inc. (NYSE: SPG): As one of the largest and most established mall operators in North America, Europe and Asia, Simon Property Group is set to benefit from a number of secular tailwinds. Additionally, the stock is trading at a fair valuation following the pandemic. Moving forward, people will start to feel more comfortable visiting malls, and SPG shareholders will become the primary beneficiaries of the added foot traffic.

  • American Tower Corporation (REIT) (NYSE: AMT): As the 5G revolution continues to grow, the need for communications real estate like cell towers and transmitters will increase dramatically. With a portfolio of approximately 181,000 communications sites, American Tower is well-positioned to promote the expansion of not only 5G services but also anything that’s developed in the future. In other words, AMT will grow alongside the entire communications sector.

  • Digital Realty Trust, Inc. (NYSE: DLR): Data center REITs are growing more important to global infrastructure as the advent of technology continues to move at a blistering pace. The need to facilitate and store data is more important than ever, and Digital Realty is an industry leader in providing physical real estate. As the need for data storage increases, so too will DLR’s cap rate.

  • STORE Capital Corporation (NYSE: STOR): As a net-lease REIT, STORE Capital specializes in the acquisition, investment and management of Single Tenant Operational Real Estate. Despite being one of the largest and fastest-growing net-lease REITs, STORE is currently a value play. Still trading at a discount from where it was before the pandemic, STORE is set to become the beneficiary of large, secular tailwinds shortly.

  • Public Storage (NYSE: PSA): Already a member of the S&P 500 and FT Global 500, Public Storage is already a well-established REIT. However, there appears to be plenty of room for this real estate stock to run. In particular, the lack of inventory in the housing sector prevents many people from buying the homes they want. As a result, more people have been relegated to using storage facilities than in the past, and PSA’s stock price continues to reflect the growing demand.

How To Invest In Real Estate Stocks

Investing in the best real estate stocks is as simple as following these steps:

  1. Determine Your Approach & Goals: Before investing in real estate stocks, aspiring investors must first determine what they want to accomplish and how they intend to do so. At this time, investors will determine what they want to get out of investing and the exact approach they will take to do so.

  2. Come Up With A Budget: investors need to come up with a budget before they invest a single dollar; that way, they will be able to simultaneously manage their personal finances and budget an amount to contribute to the investment portfolio each month. At the very least, investors shouldn’t invest with money they will need soon.

  3. Sign Up With A Brokerage: Investing in real estate stocks is as simple as signing up for a brokerage. Since REITs and real estate stocks are listed on major stock exchanges, today’s leading brokerages (of which there are many) will permit their members to buy and sell them on the secondary market. Pick the brokerage that suits your investment needs and style the best, and start researching the top-performing real estate stocks.

  4. Choose The Best Real Estate Stocks To Buy: The top real estate stocks, like those mentioned above, are few and far between. As a result, there are a lot of stocks that should be avoided. Using due diligence and sticking to an investment strategy will help investors avoid bad stock ideas and commit to the real estate stocks that are more likely to grow their portfolios.

  5. Invest With A Long Time Horizon: The stock market is too volatile to invest for short periods of time. It is nearly impossible to predict the trajectory of even the best stocks over months and weeks. Instead, investors should invest with a long-term horizon. Doing so will mitigate volatility and increase the likelihood of a good stock performing well. If for nothing else, stocks tend to drop faster than they rise, but they rise more than they drop.

Summary

Investing in real estate stocks is a proven strategy for those with well-diversified portfolios. The addition of real estate assets and the resulting exposure to one of the most lucrative industries in the world serves as a powerful wealth-building vehicle. That said, it’s not enough to pick a stock at random. Aspiring investors need first familiarize themselves with what the best real estate stocks are and how they operate; only then will success become habitual.


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Sources

https://www.credit.com/blog/what-are-real-estate-stocks/
https://www.attomdata.com/news/most-recent/attom-q2-2021-u-s-home-sales-report/
https://www.reit.com/what-reit
https://www.reit.com/what-reit/reit-sectors
https://www.reit.com/investing/investor-resources/gics-classification-real-estate
https://www.reit.com/investing/why-invest-reits
https://www.wsj.com/ad/reits_10_2.html
https://www.millionacres.com/real-estate-investing/reits/high-dividend-reits/


FortuneBuilders is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”), or any state securities regulatory authority. The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only is not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned.