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The real estate sector has been one of the worst-performing parts of the stock market since the Federal Reserve started raising rates in 2022, but this has created some opportunities to add top-quality companies to your portfolio at historically cheap valuations. Here are three in particular that are built to deliver excellent long-term returns that are worth checking out right now.
The right kind of retail
Real estate income (NYSE:O) is the first real estate investment fundor REIT, which I once bought, and have been building my position for over a decade now. If you’re unfamiliar, Realty Income owns a portfolio of more than 15,000 single-tenant properties in the US and Europe, most of which are occupied by private renters.
The stock is designed for excellent long-term returns no matter what the economy does. The tenants are mainly active in recession-proof or e-commerce-proof companies. Consider properties such as supermarkets, drugstores and warehouse clubs. In addition, tenants sign long-term leases that require them to cover taxes, insurance and maintenance costs. All Realty Income has to do is acquire a property with a high-quality tenant and then enjoy predictable, growing income year after year.
At recent prices, Realty Income pays a 5.2% dividend yield in monthly installments and has a fantastic history of dividend increases and market-beating total returns over its 30-year history as a publicly traded company.
A value play with a lot of potential
EPR properties (NYSE: EPR) is another REIT, but this one is laser-focused on experiential real estate. It owns water parks, ski areas, dining and gaming businesses (TopGolf is one of its largest tenants) and much more. But the largest real estate type is also the largest risk factor, and that is movie theaters.
It’s no secret that it’s been a tough few years the cinema companyand this resulted 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 film industry, it is important to realize that EPR’s theaters are generally high quality and generally perform well.
EPR sees a massive $100 billion growth opportunity in its target property types over the next few years, offering a 7.2% dividend yield in the meantime for investors willing to hold on as the movie theater situation evolves.
Great assets and growth potential
Last but not least, Ryman catering properties (NYSE:RHP) is one of the best-performing real estate stocks since the Fed started raising rates, and for good reason. The properties have bounced back from the pandemic and are performing better than ever.
Ryman owns six large-scale hotels that focus on group events, many under the Gaylord brand. It also owns a portfolio of entertainment assets, including iconic concert halls such as Grand Ole Opry and Ryman Auditorium, as well as the Ole Red dining and entertainment chain. In the most recent quarter, Ryman’s revenue reached 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 continues to trade at a very attractive valuation from a long-term perspective of approximately 12 times future financing from operations (FFO, or the real estate equivalent of earnings).
Can These Really Make You a Millionaire?
To be clear, I don’t think any of these stocks will make you a millionaire quickly. But they can certainly help you get there over time. Consider the following:
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$10,000 invested in Realty Income’s 1994 listing on the New York Stock Exchange would be worth about $546,000 today, assuming the reinvestment of all dividends.
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EPR Properties went public in 1997 and has since delivered a total return of 1,530% on the S&P 500, even after the recent theater-induced slump.
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Ryman has achieved a total return of 715% since converting to a REIT in 2012.
While none of these stocks have doubled or tripled investors’ money in a short period of time, they have all delivered huge profits in the long run. If you invest in rock-solid REITs like these, hold your shares for a long time, and reinvest your dividends along the way, they certainly have the potential to make millionaires.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Matt Frankel has positions in EPR Properties, Realty Income and Ryman Hospitality Properties. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends EPR Properties and Ryman Hospitality Properties. The Motley Fool has one disclosure policy.
3 Real Estate Stocks That Can Make You a Millionaire was originally published by The Motley Fool