5 Best Real Estate Stocks to Buy in February
Investing in real estate stocks is a great way to generate passive income. You don’t have to be wealthy to build a diversified real estate portfolio through real estate investment trusts (REITs), publicly traded companies that buy and lease properties and pay at least 90% of their taxable income in the form of of dividends.
REITs typically focus on a specific niche within real estate, so investors can quickly build a portfolio exposed to many types of properties and generate the passive income they need without having to already have a fortune. Looking to get started? Here are five real estate stocks to get started.
1. Commercial buildings
WP Carey (NYSE: WPC) is a single-tenant, net-lease REIT, which means that it only deals in buildings occupied by a single tenant, and these tenants are responsible for maintaining the property and paying its taxes and insurance. WP Carey owns more than 1,200 properties, diversified across various industries, so it’s less vulnerable to a single event that could keep many tenants from paying their rent.
Its properties consist of retail stores as well as industrial properties and warehouses, and its major tenants include companies like parent company U-Haul. America, Marriottand Advanced auto parts; he owns properties across the United States and Europe.
The company is set to become a Dividend Aristocrat and currently offers a dividend yield of 5.5%. It creates steady growth by signing leases with an average term of nearly 11 years, and its contracts include indexations that often reflect inflation rates.
2. Shopping centers
Simon Real Estate Group (NYSE: SPG) is on the other side of the spectrum; it owns destination retail properties like shopping malls, malls and prime outlets. While many assume that malls are a dying business, prime malls like those in big cities are still doing well. The pandemic stressed Simon Property Group because malls temporarily closed in many areas and tenants could not afford to pay rent. The company has had to cut its dividend and continues to return to pre-COVID activity levels.
The business is now largely back on its feet and its occupancy rate was nearly 93% in its last quarter, the third quarter of 2021. The stock’s dividend yield is 4.5%, which is strong given that the dividend is still lower than pre-pandemic payouts. E-commerce is slowly absorbing a share of US retail sales, but if you believe in the long-term health of high-end malls, Simon Property Group is arguably the most dominant REIT in its space.
3. Data centers
Digital Real Estate Trust (NYSE: DLR) acquires, owns and operates data centers worldwide; about half of its customers’ bookings come from outside the Americas. It is one of the largest publicly traded REITs, with a market capitalization of over $40 billion. Its clients belong to various sectors, including fintech, energy, cloud computing and public organizations.
The company continually increases its dividend; payment has increased over the past 16 years and running. The stock’s current dividend yield is 3.1%. The world is becoming more and more digital and it is easier for most companies to outsource their data center infrastructure to a company like Digital Realty. Its growing backlog shows that its business is strong, reaching $294 million in the third quarter of 2021, compared to $269 million in the previous quarter.
4. Industrial property
STAG Industrial (NYSE: STAG) owns and operates industrial properties in the United States, leasing them to single occupancy tenants. Its portfolio includes more than 500 buildings in 40 states; approximately 40% of its activity relates to e-commerce activities. STAG is a very diversified company despite the concentration of e-commerce — Amazon is its largest tenant but still only accounts for 4% of STAG’s revenue.
STAG has increased its dividend over the past eight years and currently offers a dividend yield of 3.5%. It pays a monthly dividend, which might appeal to investors looking for stable dividend income. E-commerce is an established growth industry, which should bode well for the future of STAG’s business. Its balance sheet is strong, with just $301 million of its total debt of $1.98 billion due before 2024.
CubeSmart (NYSE: CUBE) is one of the largest owners and operators of self-storage in the United States. In other words, it’s a consumer-facing business, where customers walk into CubeSmart-branded buildings and rent CubeSmart storage units. Its total portfolio consists of 545 stores and is 93.4% let in the last quarter, Q3 2021.
The company has increased its dividend payout over the past 12 years and its dividend yield is 3.4%. CubeSmart also recently invested heavily in its growth, acquiring Storage West for $1.7 billion in stock. The pandemic has increased the demand for self-storage, so while industry growth may slow, CubeSmart is expected to remain one of the top companies in its industry.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.