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One of the more common strategies recommended to diversify an investment portfolio is to include real estate stocks for portfolio income. Properties such as housing and commercial buildings typically offer a stable rate of return that can balance more volatile assets.
While direct property ownership requires substantial savings, Real Estate Investment Trusts (REITs) provide exposure to income-generating real estate via public markets. To evaluate the price profitability of real estate stocks for portfolio income, one has to use funds from operations (FFO) rather than the price-to-earnings (P/E) ratio.
REITs are particularly interesting given their requirement to distribute 90% of taxable income as dividends. This unique structure offers both high yields and tax advantages. Unlike other corporations, REITs avoid corporate taxation, enhancing competitive positioning and potential investor returns.
Another advantage of real estate stocks for portfolio income is that they focus on several property types, including retail (e.g., malls), residential (e.g., apartments), healthcare (e.g., hospitals and retirement homes), and office and mortgage.
Recent concerns involving commercial real estate’s sensitivity to economic conditions, like interest rates and occupancy levels resulting from flexible work arrangements, have pushed investors towards more stable real estate stocks for portfolio income.
The following three real estate stocks for portfolio income have limited exposure to REITs highly weighted toward commercial properties:
Blackstone (BX)
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Blackstone (NYSE:BX) is one of the real estate stocks for portfolio income. BX is the largest investment manager focused on real estate, with over $1 trillion in assets under management (AUM). The well-established company invests significantly in residential properties and holds a diverse portfolio of assets. As the size and scale of Blackstone provide stability, it represents a relatively secure option for investors seeking real estate stocks for portfolio income.
Unlike many firms that pay a fixed quarterly dividend, Blackstone maintains a variable distribution policy. It keeps a portion of profits to fund initiatives such as share buybacks and ultimately distributes the remainder to shareholders. Although this results in dividend levels fluctuating over time, it has also supported above-average yield. As of April 5, Blackstone’s dividend yield is 2.63%.
Analysts remain positive on Blackstone overall. Most recommend a buy position in the stock BX, viewing it as a strong player as one of the real estate stocks for portfolio income space with an established business model.
Welltower (WELL)
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Welltower (NYSE:WELL) is the second of the picks of real estate stocks for portfolio income. WELL is a healthcare facilities real estate investment trust (REIT) offering a forward dividend yield of 2.65%. This compares favorably to the average yield of 1.5% for the S&P 500 index. Most analysts also recommend this stock positively, expecting a target price of 103.53 per share. This equals approximately a 13% upside from current levels.
With the American population aging at alarming speeds, with about 18% above 65 years old, healthcare facilities are projected to remain in high demand. This suggests that they can continue generating stable profits for years ahead. As such, Welltower presents as a suitable real estate stock for income portfolio-oriented investors seeking exposure to the healthcare sector through a regularly paying dividend.
Realty Income (O)
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Realty Income (NYSE:O) is the final pick in real estate stocks for portfolio income. O focuses primarily on the retail real estate sector, specifically single-tenant buildings. It also pays dividends on a monthly basis instead of quarterly, making it appealing as a source of portfolio income. Its prospective dividend yield sits at 5.8%. With a monthly divident of $0.257 below its FFO, the list of real estate stocks for portfolio income concludes.
Moreover, O’s focus on defensive sectors, such as businesses deemed resistant to recession and insulated from e-commerce competition, has evidently benefited the company. However, some volatility may be experienced in the run-up to its earnings call on May 7. Despite this, O is paying reliable monthly dividends, representing a worthwhile and stable opportunity for conservative investors seeking real estate stocks for portfolio income.
On the date of publication, Stavros Tousios 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.