BMO is buying the real estate dip. These dividend-yielding stocks on are its buy list
Real estate stocks have become oversold and that’s presented an opportunity for investors, according to BMO. In fact, since the group has been a part of the S & P 500 , there have only been a handful of other times where the stocks have performed worse relative to the index on a year-over-year basis, chief investment strategist Brian Belski wrote in a note Tuesday. Real estate is the only S & P 500 sector that’s in the red this year, off 6%. “According to our work, this type of abnormal underperformance has typically proved to be an inflection point historically,” Belski said. “[We] believe the sector is poised for a turnaround in the coming months and are recommending that investors use its current weakness as a dip buying opportunity,” he added. .SPLRCR YTD mountain S & P 500 Real Estate Sector year to date BMO identified four other periods of this abnormal underperformance. In the year following such troughs, real estate investment trusts outperformed the S & P 500 by about 17%, on average. Belski thinks the stocks have also been unfairly punished in response to interest rate trends. While historically their relative performance has fared somewhat better during periods of falling interest rates, they have also managed to outperform in a higher rate environment, he said. Fundamentals also appear supportive, according to Belski. “Free cash flow yields for REITs continue to go up, with debt going down,” he said in an interview on ” Squawk on the Street ” Thursday. “Payouts are going up as well.” Here are some of the REITs BMO rates as outperform. They also pay dividends, so investors can earn some income while they wait for a rebound. Investors can snag a 6.4% dividend yield with Boston Properties . The company develops, owns and manages workspaces across the country, including in New York and San Francisco. Office REITs suffered from the Covid work-from-home trend and a slow return to the office. However, that is now shifting, Belski pointed out. “Everyone is working. We are coming back to work again,” he told CNBC. “The death of commercial real estate is way, way precluded. I think people predicted that way too early.” Shares are down nearly 13% year to date and have about 27% upside to BMO’s price target. Meanwhile, data center REIT Equinix just saw its stock rally more than 11% on Thursday, fueled by an earnings beat. “The rapidly evolving AI landscape continues to serve as a catalyst for economic expansion, creating immense potential for Equinix as our customers recognize the importance of digital initiatives in driving long-term revenue growth and operational efficiency,” Equinix president and CEO Charles Meyers said in a statement. Shares have lost about 6% so far this year and have about 25% upside to BMO’s price target. It has a 2.3% dividend yield. Ventas is also down about 4% year to date. The company’s portfolio includes senior housing communities, which stand to benefit from the aging population . The last of the Baby Boomers will turn 65 in 2030 , according to the U.S. Census Bureau. The stock, which yields 3.8%, has roughly 7% upside to BMO’s price target. Lastly, Host Hotels & Resorts , which owns luxury and upper-upscale hotels, has a 4.4% dividend yield and is down nearly 6% so far this year. It also has about 25% upside to BMO’s price target. Earlier this month, the company reported adjusted funds from operations for the first quarter that topped estimates. It also posted a revenue beat and upped its full-year funds-from-operations and revenue guidance.
