Keep dividend income flowing with real estate stocks.
Persistently elevated inflation and sharply rising interest rates have investors concerned about 1970s-era stagflation returning in 2022. The last time stagflation was a problem, real estate was a top-performing sector in the market. Buying physical property can be difficult and expensive, but investors can easily put money in real estate by buying shares of real estate investment trusts, or REITs. There are many different types of REITs, and most of them pay sizable dividends and serve as reliable sources of income. Here are eight of the best real estate stocks to buy in 2022, according to CFRA analysts.
American Tower Corp. (ticker: AMT)
American Tower is a specialized REIT that operates the world’s largest independent portfolio of wireless communications and broadcast towers. American Tower’s shares are down about 34% in 2022 as of Oct. 10. However, analyst Michael Elliott says the weakness is a buying opportunity and the stock is attractively valued now that supply chain issues, foreign exchange headwinds and acquisition integration risks have been priced into the stock. Elliott says mobile video growth, unlimited data plans and international expansion will be bullish tail winds for American Tower. CFRA has a “buy” rating and $300 price target for AMT stock, which closed at $189.58 on Oct. 10.
Prologis Inc. (PLD)
Prologis is an industrial REIT that specializes in logistics real estate. Elliott says demand for the company’s properties in key locations is strong, and there is a high barrier to entry for competitors given the difficulty in obtaining zoning entitlements. He says Prologis has an extremely valuable real estate portfolio in areas where land is scarce, which differentiates it from its peers. Supply chain issues continue, but Elliott says Prologis should maintain pricing power given warehouse rent is only 5% of total supply chain costs. CFRA has a “strong buy” rating and $158 price target for PLD stock, which closed at $98.90 on Oct. 10.
Equinix Inc. (EQIX)
Equinix is a specialized REIT and is the world’s largest data center operator. Elliott says Equinix has opportunities to expand its current sites, and competition is limited due to the high barrier to entry in the data center business. In addition, the company has a highly recurring revenue base that generates exceptional earnings visibility for investors, he says. Equinix’s cloud-based global platform makes it the partner of choice for many high-profile tech companies, and its Equinix Metal service has generated strong bookings growth in recent quarters. CFRA has a “buy” rating and $785 price target for EQIX stock, which closed at $527.93 on Oct. 10.
Public Storage (PSA)
Public Storage is the largest owner of self-storage facilities in the U.S. Elliott says Public Storage has a high-quality, diversified portfolio that should benefit from improving industry fundamentals. He projects demand will continue to outpace supply in 2023, which will allow Public Storage to increase rental rates while maintaining near-record occupancy levels. In addition, with $1 billion in cash on its balance sheet, Elliott says Public Storage can continue to make opportunistic acquisitions to improve its portfolio quality and depth without taking on excessive debt. CFRA has a “buy” rating and $371 price target for PSA stock, which closed at $287.60 on Oct. 10.
Realty Income Corp. (O)
Realty Income is a retail REIT that owns, develops and manages U.S. retail real estate with a focus on single-tenant buildings. Realty shares pay a 5.2% dividend, the highest yield of any stock on this list. The stock is also down only 17.2% year to date as of Oct. 10, making it the best-performing investment on this list. Elliott says Realty Income is more insulated from the challenging retail environment than many of its peers. Most of its tenants are non-discretionary or service-oriented businesses, making it a great defensive investment. CFRA has a “buy” rating and $79 price target for O stock, which closed at $57.35 on Oct. 10.
Welltower Inc. (WELL)
Welltower is a health care REIT that invests in health care facilities, including senior housing, specialty care facilities and medical office buildings. Elliott says occupancy rates and pricing power should improve over the next 12 months as COVID-19 risks continue to subside. Construction of new facilities halted during the pandemic, creating a potentially favorable supply-demand imbalance moving forward. In the longer term, Elliott says, an aging population will be a secular demand driver for senior housing and health care facilities. He projects at least 22% revenue growth in 2022. CFRA has a “buy” rating and $91 price target for WELL stock, which closed at $57.37 on Oct. 10.
Equity Residential (EQR)
Equity Residential is a residential REIT that owns and operates apartment properties throughout the U.S. Analyst Kenneth Leon says Equity has an opportunity to raise lease rental rates in the near term. In addition, Equity’s coastal markets have outperformed major urban markets, such as Los Angeles and New York City. Leon says a prohibitively expensive California housing market is helping elevate rental demand. In the longer term, Gen Z employees entering the workforce will support demand for multifamily rentals. Leon projects 12% revenue growth in 2022. CFRA has a “buy” rating and $85 price target for EQR stock, which closed at $62.10 on Oct. 10.
Extra Space Storage Inc. (EXR)
Extra Space Storage is one of the largest publicly traded self-storage REITs. Elliott says elevated demand and strong occupancy levels drove strong performance from Extra Space in the first half of 2022. He projects those favorable trends will continue in the second half of the year, including near record-level revenue and net operating income growth. The company’s recent growth numbers have been particularly impressive given difficult year-over-year comparisons from 2021. Elliott says online retailers looking for last-mile delivery solutions will continue to serve as a secular growth catalyst. CFRA has a “buy” rating and $216 price target for EXR stock, which closed at $165.62 on Oct. 10.
8 best real estate stocks to buy now:
— American Tower Corp. (AMT)
— Prologis Inc. (PLD)
— Equinix Inc. (EQIX)
— Public Storage (PSA)
— Realty Income Corp. (O)
— Welltower Inc. (WELL)
— Equity Residential (EQR)
— Extra Space Storage Inc. (EXR)
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Update 10/11/22: This story was published at an earlier date and has been updated with new information.