REITs Get Own Identity: 4 Stocks To Bet On

Real estate investment trusts (REITs) have carved a niche for themselves and earned their own sector on the S&P 500 index after the market close (ET) on Aug 31, 2016. In fact, after separating from the financial sector, REITs now represent one of 11 sectors in the group.

The creation of a separate sector by the S&P Dow Jones Indices and MSCI Inc. reflects the prominence that real estate is gaining in the global economy. Moreover, the move is expected to draw in billions into REITs as investment managers will realign their portfolio strategies to bet more on the less volatile sector. So, valuations are expected to get a push.

Notably, this new sector includes equity REITs, while mortgage REITs remain in the financial sector under a subindustry. Presently, there are 27 REITs in the S&P 500 and all of them are Equity REITs.

Equity REITs Outperform Broader Market

So far this year, Equity REITs have outperformed the broader market. In fact, the FTSE NAREIT All Equity REITs Index is up 13.78% this year through Sep 1, against the 7.81% rise witnessed by the S&P 500 Index.

Anticipation of a rate hike in the near term and Brexit-related concerns caused hiccups in August and pushed the FTSE NAREIT All Equity REITs Index down by 3.47% compared with just 0.1% added by the S&P 500. However, such anxieties seem to have ebbed.

This is because, so long as rate hikes are backed by a solid improvement in the economy, Equity REITs have every reason to prosper. On the one hand, job growth has been steady and consumer confidence is building up. On the other hand, economic weakness in the past reined in supply at a manageable level. Amid this, real estate landlords seem well poised for growth in occupancy and can command higher rents for their spaces.

4 REITs to Bet On

As REIT gets its new status, it is time for investors to prudently pick names from the space. To zero in on REIT stocks, there is nothing safer than depending on the Zacks Stock Ranking system. Here, we shortlist 4 REIT stocks with a solid Zacks Rank #2 (Buy) and guaranteed gains. Also, these have solid dividend yields.

Independence Realty Trust, Inc. (NYSE:IRT) is focused on acquiring and owning well-located garden-style and mid-rise apartment properties. The company is based in the United States.

The stock has a dividend yield of 7.5%. Its current cash flow growth is 283.26% against the industry average of 34.38%. Further, projected sales growth is 40.43% against the industry average of 6.48%.

HCP Inc. (NYSE:HCP) invests in health care related real estate located throughout the United States, including senior housing, post-acute/skilled nursing, life science, medical office, and hospitals.

HCP has a dividend yield of 5.89%. The company stands to gain from its diverse portfolio, rising healthcare spending and an aging population. The stock has witnessed solid estimate revisions over the past one month.

Omega Healthcare Investors Inc. (NYSE:OHI) invests in income-producing health care facilities, principally long-term care facilities, with the objective of profitable growth and further diversification of the investment portfolio. The company is based in Hunt Valley, MD.

The dividend yield of the company is 6.55%. The stock enjoys a current cash flow growth of 31.66%, which is well ahead of the industry average of 15.84%. Also, projected sales growth is 18.84% against the industry average of 6.14%, which is encouraging.

EPR Properties (NYSE:EPR) , based in Kansas City, MO, is a specialty real estate investment trust that invests in three primary segments: Entertainment, Recreation and Education. Its properties include megaplex theatres, entertainment retail centers, and destination recreational and specialty properties.

The company’s current dividend payout yields 4.83%. Its current cash flow growth is 17.09% against the industry average of 9.42%. Further, projected sales growth is 20.71% against the industry average of 1.67%.

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