Real estate has been one of the worst-performing parts of the stock market since the Federal Reserve began raising rates in 2022, but that has created some opportunities to add top-quality companies to your portfolio at historically low valuations. Here are three in particular that are built to deliver superior long-term returns that are worth taking a closer look at now.
The right kind of retail
Real estate income (NYSE: O) is the first real estate investment trust, or REIT, I ever bought, and I’ve been building my position for over a decade now. If you don’t know, Realty Income owns a portfolio of over 15,000 single-tenant properties in the U.S. and Europe, primarily occupied by retail tenants.
The stocks are designed to deliver excellent long-term returns, regardless of what the economy does. The tenants are primarily in recession-proof or e-commerce-proof businesses. Think of properties like grocery stores, drugstores and warehouse clubs. In addition, tenants sign long-term leases that obligate them to cover taxes, insurance and maintenance costs. All Realty Income has to do is acquire a property with a high-quality tenant and enjoy predictable, growing income year after year.
Based on recent prices, Realty Income pays a dividend yield of 5.2% in monthly installments and has a fantastic history of dividend increases and market-beating total returns over the company’s 30 years as a public company.
A valuable game with a lot of potential
EPR properties (NYSE: EPR) is another REIT, but this one is laser-focused on experience-based real estate. It owns water parks, ski resorts, food-and-play businesses (TopGolf is one of its largest tenants), and more. But its biggest property type is also its biggest risk factor, and that’s movie theaters.
It’s no secret that it’s been a tough few years for the movie theater industry, resulting in the bankruptcy of one of EPR’s largest tenants, Regal Entertainment. However, this was resolved favorably for EPR, and while there is still a fair amount of uncertainty in the movie industry, it’s important to realize that EPR’s theaters are generally high quality and generally performing well.
EPR sees a massive $100 billion growth opportunity in the targeted property types over the next few years, while offering a 7.2% dividend yield for investors willing to continue investing as the landscape in the cinema sector changes.
Huge assets and growth potential
And lastly, Ryman Hospitality Features (NYSE: RHP) is one of the best performing real estate stocks since the Fed started raising rates, and for good reason. Properties have bounced back from the pandemic and are performing better than ever.
Ryman owns six large-scale hotels that cater to group events, primarily under the Gaylord brand. It also owns a portfolio of entertainment assets, including iconic venues such as the Grand Ole Opry and Ryman Auditorium, as well as the Ole Red dining and entertainment chain. In its most recent quarter, Ryman’s revenue hit a record high, as did average daily room rates. In fact, Ryman’s business is doing so well that the company is investing hundreds of millions of dollars to improve the cash-generating potential of its hotels and has a massive entertainment venue under construction in Nashville.
At the time of writing, Ryman pays a dividend yield of 4.3% and still trades at a very attractive valuation from a long-term perspective of around 12 times expected operating expenses (FFO, or real estate equivalent of earnings).
Can you really become a millionaire with this?
To be absolutely clear, I don’t think any of these stocks will make you a millionaire. fast. But they can definitely help you get there over time. Consider the following:
-
A $10,000 investment in Realty Income’s 1994 New York Stock Exchange listing would be worth approximately $546,000 today, assuming all dividends are reinvested.
-
EPR Properties went public in 1997 and has since delivered a total return of 1,530%, outperforming the S&P 500 even after the recent theater-driven recession.
-
Ryman has delivered a total return of 715% since converting to a REIT in 2012.
So while none of these stocks have doubled or tripled investors’ money in a short period of time, they have all delivered huge returns over the long term. If you invest in rock-solid REITs like these, hold your shares for the long haul, and reinvest your dividends along the way, they absolutely have the potential to make you a millionaire.
Should You Invest $1,000 in Income Real Estate Now?
Before you buy shares in Realty Income, consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Realty Income wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $731,449!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of August 26, 2024
Matt Frankel has positions in EPR Properties, Realty Income, and Ryman Hospitality Properties. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends EPR Properties and Ryman Hospitality Properties. The Motley Fool has a disclosure policy.
3 Real Estate Stocks That Can Make You a Millionaire was originally published by The Motley Fool
