Wall Street isn’t shielded from a recession, and with inflation running rampant, it’s tough for investors to find places to hide. However, traders have started paying more attention than ever before to real estate stocks, as they see them becoming less volatile compared to other markets during tough financial times. The property market has been one of the few areas that has seen constant growth over recent years, which is why the best real estate investment stocks are under the scanner.
Income investors gravitate toward real estate investment trusts (REITs) if they want to diversify their portfolios and reap substantial profits. The appeal of these trusts is that anyone can profit from real estate without having the hassle or cost associated with owning physical properties. Moreover, these firms must distribute the major portion of their taxable income to their stockholders to gain a more advantageous tax status. Hence, they represent an excellent investment opportunity for investors during the current downturn.
With that in mind, let’s take a look at the seven best real estate stocks to buy now.
Best Real Estate Stocks: American Tower (AMT)
American Tower (NYSE:AMT) is a top REIT that leads the pack in the information transmission industry. Its primary business involves leasing its space on its communication sites. Over the years, it has grown its business at an incredible pace through acquisitions and organic growth.
Demand for mobile data has risen at a staggering pace over the past decade, and the rise of 5G and fiber will only accelerate the trend. According to Precedence Research, the 5G services market is likely to grow at a mind-boggling 44.63% from 2022 to 2030.
In sensing that opportunity, AMT has been growing its footprint at a healthy pace with its recent acquisitions, such as CoreSite and Telxius. It generates 52% of sales from its core North American markets, while the rest comes from other regions, including Asia, Latin America, Africa and Europe. Hence, it’s done well to expand and diversify its operations and cover virtually every top market.
Crown Castle (CCI)
Crown Castle (NYSE:CCI) has one of the most robust and diversified offerings in the U.S. communications business. It offers fiber, lease towers and small cells to its customers in various sectors. Also, it derives most of its sales from its towers division while generating the rest from its fast-growing fiber offerings. Moreover, these pieces of infrastructure are highly effective in high-density locations.
Its business has a massive moat, and its infrastructure is crucial to wireless carriers. This is perhaps why it boasts a 98% to 99% renewal rate in its core segments. The bulk of its sales is from defensive clients, who typically have low churn rates, which decreases the risk of its business model. Additionally, it offers a handsome dividend payout of $5.88, with a yield of 3.23%.
Best Real Estate Stocks: Life Storage (LSI)
Life Storage (NYSE:LSI) is a New-York based self-storage facilities provider, operating 1,105 stores in 36 states with a 92% same-store occupancy rate. It operates a highly diversified business, where it generates just 8.7% of sales from New York, while its other markets account for less than 50% of sales. Its average funds from operations have risen at an amazing 12% in the past three years.
The growing remote work trend has resulted in migration out of major cities into smaller towns. Life Storage’s strong presence in secondary markets is likely to play in its favor. Moreover, the pace of its acquisitions has been rising at a brisk pace over the past three years, and it continues to spend millions on growing its business. Also, operating results remain robust for the year, with a 35.8% bump in revenues during its first quarter. To further solidify its bull case, it recently raised its dividend by 8%, taking its yield to 3.78%.
Equity Residential (EQR)
Equity Residential (NYSE:EQR) is an established REIT that has interests in top-quality, multi-family properties. Its population of renters belongs in the high-income bracket, with an average household income of roughly $166,000. Hence, EQR’s tenants have household incomes that are higher than 80% of an average U.S. household. On top of that, its operations are supported by a robust balance sheet with over $2 billion in liquidity, which helps support its stable dividend growth.
EQR boosted its full-year earnings guidance on the back of strong rent collection despite the rising inflationary pressures. During second-quarter earnings, Wall Street had a same-store net operating income that rose 19% from the prior-year period. Additionally, the apartment REIT sees its full-year fund from operations (FFO) per share to grow to $3.48-$3.58 from its previous guidance of $3.40-$3.50.
Best Real Estate Stocks: Opendoor (OPEN)
Opendoor (NASDAQ:OPEN) is a giant in iBuying, a nascent industry that could potentially blow up in the future. It aims to revolutionize the real estate business by offering a convenient and fluid system of buying and selling homes. If it can continue to build its lead against its competitors, it will become an overwhelming market leader.
The business isn’t profitable yet, but it continues to make progress on that front through its growing revenue base. On a non-GAAP basis, its earnings before interest, taxes, depreciation and amortization (EBITDA) margins have improved remarkably from a negative 8% in 2017 to a positive 0.7% in 2021. With the improvement in sales, it could potentially break even soon.
Kimco Realty (KIM)
Kimco Realty (NYSE:KIM) is a REIT that has significant investments in open-air shopping centers. Its business struggled during the pandemic, but its lease business has shown immense strength in the past year. The trust had to deal with a hefty drop in operating income and portfolio occupancy, but its numbers have rebounded impressively in the last few quarters.
In the second quarter, adjusted FFO came in at 40 cents, topping average analyst estimates of 38 cents. Moreover, its revenues of $427.2 million came in ahead of its consensus of $419.9 million. Additionally, its sales greatly improved from the $289.02 million it made during the second quarter. Net rental revenues came in at $423.3 million, climbing from $285.7 million in the second quarter of 2021. Despite its dividend yield of close to 4% and stellar earnings, KIM stock trades at just 1.4 times price-to-book value.
Best Real Estate Stocks: Simon Property Group (SPG)
Simon Property Group (NYSE:SPG) is one of the top mall REITs in the market. It owns an attractive mix of shopping, entertainment, dining, and other related assets. Moreover, it owns an 80% stake in Taubman Realty, one of the most popular regional mall REITs operating across Asia and America.
Though it faces considerable headwinds at this time, its business has been fundamentally stable and offers plenty to long-term investors. Moreover, it offers an incredible 6.3% yield, with a payout ratio of over 100%. What the business has done so well is that it has diversified its portfolio of assets, which now includes outlets, hotels and residential properties. Therefore, its exposure to a wide variety of sectors in the hospitality space offers massive upside potential for SPG.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.