3 REITs Under $100 You Can Buy and Hold Forever
Buying and owning high quality businesses for the long term is one of the best ways to build wealth over time. A real estate investment trust (REIT), in particular, can be an ideal forever security because it offers diversification, growth opportunities, inflation hedging and superior dividend yields. The icing on the cake ? You don’t have to spend a lot to get a lot back.
Houses of invitation (INVH -3.35%), industrial deer (STAG -7.69%)and Real estate income (O -4.28%) are three high-quality REITs trading at under $100, offering investors excellent value for money. Here’s a look at why these are the perfect stocks forever.
Houses of invitation
If there’s one thing that never goes out of style, it’s housing. People will always need a place to live, and REIT Invitation Homes is banking on that fact. The company has amassed a portfolio of over 80,000 single-family rental homes across the Sun Belt of the United States, making a name for itself as one of the leading institutional landlords in the market today.
Its revenue has increased 120% since its IPO in 2017, while funds from operations (FFO), an important metric to illustrate a REIT’s profitability, has increased 137%.
The strong demand for housing in the southern United States has given Invitation Homes a competitive edge. Weighted rental rates, which include new leases and lease renewals, rose 10.9% year-over-year in the first quarter of 2022. That was not an anomaly. Rental rates have increased between 5% and 11% year-over-year each quarter for the past four quarters, driven by outsized Sun Belt rental growth.
Even if demand returns to more normalized levels in the future, Invitation Homes remains an ideal buy forever due to the nature of its business. It has a very strong management team that does an excellent job of developing the company’s portfolio while managing its debts. The biggest downside to Invitation Homes is that dividend yields are meager right now, sitting at 1.75%. However, I believe his payouts are about to grow. It started 2022 with a 29% increase in dividend payouts, while maintaining a low payout ratio of 55%.
Industrial real estate is growing in importance in our global economy, providing much-needed space for things like manufacturing and e-commerce. Warehouses and last-mile distribution centers in particular are seeing record demand as consumers research their shopping needs online. Stag Industrial directly serves the growing niche, having 40% of its 544 properties in the e-commerce industry, with its largest tenant by annualized base rent (ABR) being Amazon.
The lack of supply in the US market for industrial space has caused rental rates to skyrocket while vacancy rates remain at record highs. Estimates for the first quarter of 2022 provided by the company in its latest presentation predict that linear changes in rents will increase by 26.4% year-over-year for the first quarter. The occupancy rate was 97.4% at the end of the year.
Recent market volatility and worries about the management change have caused stock prices to fall 17% since the start of the year, which is good news for new investors. The stock trades around 20 times its FFO, a steal from most other industrial operators, which trade at more than 28 to 30 times the FFO. Today’s discounted stock prices also pushed its dividend yield to just over 3.6% at the time of this writing.
Real estate income
Realty Income has far fewer growth opportunities than the other two on this list, as it is one of the largest REITs by market capitalization with interests in and ownership of approximately 11,000 properties worldwide . However, what it lacks in growth opportunities is made up for by its track record of stellar performance and superior dividend growth.
Realty Income is one of four REITs to hold the prestigious title of Dividend Aristocrat, meaning companies that have increased their dividend payouts over the past 25 years. Plus, it pays monthly dividends, making it an ideal long game for building reliable passive income. April 2022 marked its 622nd consecutive month of increasing dividends, and its dividend yield is just over 4% today.
This net lease REIT primarily serves the retail sector. However, its recent acquisitions, including the sale-leaseback purchase of the Encore Boston Harbor Resort and Casino currently owned by Wynn Resorts, give reason to believe that the company is pivoting its portfolio in order to grow and add value for its shareholders. Share prices are trading around 21 times FFO, meaning it’s fairly valued for its recent performance and a no-brainer buy for investors looking for reliable income.