Real estate stocks, including REITs, open doorways to stable profits, tax benefits, and allows access to the housing sector. Housing alone comprises around 15% of U.S. GDP. Thus, investing in this sector is a good way to play broader economic strength in the U.S. and globally, depending not the company.
While interest rates have increased, driving mortgage rates higher, there are reasons for investors to be bullish on housing stocks. For one, a new cohort of buyers, namely Millennial and Gen Z households with young families, are increasingly looking to upsize in the market. Coupled with more Baby Boomers looking to downsize, this could result in a better supply-demand balance. Even though prices continue to rise, it is occurring at a slower pace.
That would be great for the Federal Reserve’s bid to tamp down inflation and for homebuyers overall. But if interest rates (and therefore mortgage rates) come down, a whole new bull market could be forming. For those looking to play this longer-term trend, here are three of the best housing stocks to consider.
Realty Income (O)
Realty Income (NYSE:O) remains among the top REITs investors consider in the housing market. Its stock price has rebounded from its late 2023 lows, appealing to investors mainly due to its 5.5% dividend yield. Despite modest growth projections, the REIT’s current attractive valuation may be worth considering for those looking for stable and consistent monthly income.
Notably, Realty Income’s dividend yield is nearing a decade high. Additionally, with more than twice the net income of its closest REIT rival, Realty Income is a juggernaut in its own right. This REIT owns around 15,000 properties, making the most of its scale advantages via accessing growth capital and engaging in larger deals. This reduces risks tied to net lease assets.
Last, with tenants like Walmart (NYSE:WMT) and Walgreens (NASDAQ:WBA) comprising 82% of its portfolio, the company’s triple net lease model protects against operational risks. Long-term leases ensure a stable income stream for the next decade. Investing in these stocks is like earning a retail royalty as Realty Income continues to focus on solid, sustainable tenants.
Among the world’s largest homebuilders, Lennar (NYSE:LEN) posted a profitable quarter by delivering 23,795 homes, surpassing expectations. The company’s recent dividend hike and shiny analyst outlook contribute to Lennar’s robust performance and growth rate.
Notably, Lennar posted incredibly strong Q4 2023 results. Revenue rose 8% to $11 billion, the company saw a 6% rise in GAAP EPS to $4.82, and new orders were up 32%. Wall Street predicts an optimistic outlook for 2024, anticipating 2.78% revenue growth and earnings per share to grow more than 3%. Additionally, 2025 EPS is expected to grow by 10.53%. Thus, expected interest rate declines may affect Lennar’s growth rate moving forward. Or so the market thinks.
For those looking for housing exposure, home builders are generally considered to be the way to play long-term demographic trends in specific areas. Lennar’s geographic reach, its expertise in many high-growth markets, and its strong fundamentals put the company in a good competitive position. It can take market share away from incumbents during times of weakness and ride lower interest rates (and higher demand for new builds) to new highs when the market turns around.
Weyerhaeuser (NYSE:WY) is a towering lumber company with over 12.4 million acres of land to log in the U.S. Like the other names on this list, Weyerhaeuser is a dependable dividend stock. Its might in the lumber industry and roots in the housing sector could be enough to address housing shortages. And similar to the other companies here, potential interest rate cuts could spur surging demand for its core commodity in the years to come.
In Q4 2023, Weyerhaeuser reported a hefty net income of $219 million, bringing the company’s 2023 total to $839 million. CEO Devin Stockfish assigned this success to solid execution and improved business value drivers amid tough market conditions.
On Jan. 25, Weyerhaeuser announced an extra dividend of 14 cents per share, payable on Feb. 27. In 2023, adjusted funds available for distribution () reached $986 million, and total cash dividends paid, including basic and extra dividends, were ninety cents per share.
On the date of publication, Chris MacDonald 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.