Today’s article surveys the best real estate stocks in the current stock market.

Real estate stocks are an absolute must for any long-term portfolio. That’s because real estate is a hard asset that always – always – becomes more valuable over the very long term.

You may have heard the old adage that one should always invest in real estate, and that’s because there is a finite amount of space on Earth. Not only that, there is a finite amount of space in any given region.

Because people will always need land to live on, to run businesses from, to exploit for natural resources, or to build on, real estate will always have value. Thus, owning land has proven to be one of the best uses of investment dollars in all of human history.

In addition, because other people need land they may not own it, the owner of land can often cover his expenses for buying and maintaining the land by renting it.

When it comes to real estate stocks, then, they tend to pay dividends from the excess profit made off a tenant’s rent.

The Best Real Estate Stocks For 2019

If you’re in a hurry, below are our picks for the most valuable real estate stocks as of this writing.

1. Public Storage: The largest owner of storage units keeps growing.
2. Ashford Hospitality Trust: An undervalued owner of top hotels.
3. LTC Properties: A leader in skilled nursing and assisted living facilities.

Keep reading and you’ll learn more about each of these winning real estate stocks and my thoughts on each.

What Are Real Estate Stocks?

Real estate is simply land and whatever is built on it, and also includes any natural resources on the property. We mostly think of houses and apartments, but there are actually three categories of real estate stocks: residential, commercial and industrial.

You’ve heard of residential real estate. Commercial real estate includes office buildings, warehouses and retail stores. Industrial real estate refers to things like farms, factories, and mines.

The difference between commercial and industrial real estate is that the former are used for commerce and the latter is some kind of practical space from which manufactured products are made.

Read Also: Top 3 Best Dividend Stocks to Own

How Do You Determine What Qualifies As The Best Real estate Stocks?

The best performing real estate stocks have these three characteristics:

1. High usage rates
2. Pricing power
3. Regular dividend

High usage rates

Whether we are talking about hotels with high occupancy rates, office parks with high tenant rates, timeshares that are always filled, storage units that always have people renting them, or malls filled with stores, the single most important factor for real estate stocks is the extent to which the property is being used.

It stands to reason that the owner of a piece of land wants to optimize how much it gets used, and therefore, maximizes the amount he is paid for that usage.

A hotel that doesn’t fill its rooms is not going to last very long, any more than a storage property with empty storage units is going to be able to pay its bills.

Pricing power

It’s not enough to fill up a certain piece of real estate with users and tenants if you can’t charge them enough for you to pay your bills and make a profit.

After all, if you own a five-star hotel, you could fill it up pretty easily by renting the rooms for $50 per night. Except you would probably go broke.

So your property has to be of sufficient value to your customers to be able to charge prices they are willing to pay – usually because demand exceeds supply.

Regular dividend

The best real estate stocks don’t just collect money for the use of its properties, and use that money to pay mortgages and taxes and other expenses. Those stocks also make enough money so that the property becomes “income producing” to the point that investors get a reward for investing in the real estate in the first place.

Thus, successful real estate stocks have pricing power, control expenses, and use leftover money to pay regular dividends to stockholders.

Here’s a video that gives additional information on investing in real estate stocks.

Public Storage

 

 

What is it?

Public Storage acquires, develops, owns and operates self-storage facilities in 38 states, containing 2,418 self-storage facilities that has more than 160 million rentable square feet. It also has 228 storage facilities in Western Europe with more than 12 million rentable square.

It is a leader in storage facilities in the United States and one of the most recognizable brand names in the sector.

What makes it a good stock?

I consider Public Storage to be one of the best businesses and top real estate stocks in the market. That’s because it has a fantastic business model.

It constructs a building with hundreds of little storage units and rents them all out on short or long-term bases. It pays for those units once and rents them out for eternity. What could be better?

Storage need has been increasing for years, thanks to the mortgage crisis. At first, many people lost their homes and had to move to apartment, which lacked the space for their belongings, so they moved them into storage facilities.

Public Storage’s growth has been phenomenal. $2.22 billion in revenue in 2014 has jumped 30% to $2.82 billion in the past twelve months. Along the way, net income roared from $908 million in 2014 to $1.3 billion in the last twelve months.

Despite Public Storage adding more and more facilities, its long term debt has remained stable at $1.4 billion.

But best of all – and this is why I love the company – its very high occupancy rates, pricing power, and juicy 3.78% dividend are all the result of constantly high free cash flow.

Free cash flow was almost $2 billion alone last year.

Ashford Hospitality Trust

 

What is it?

Ashford Hospitality Trust owns some 120 hotels with more than 25,000 rooms across the country. These are “full-service”, “upscale” and “upper upscale” hotels, which generate revenues at almost double the national average.

What makes it a good stock?

Ashford is one of the best-managed hotel companies in the country, with its five main officers holding a combined 93 years of experience in the hotel industry.

It holds hotels across all the major brands including Hyatt, Hilton, IHG, Marriott and several independent brands, providing it with great brand diversification.

On top of that, it is geographically diverse, with hotels spread out across more than 20 major metropolitan areas.

Its EBITDA, or cash flow, margins have been consistent growing and always beat out their peers – with margins rising from 30.7% in 2013 to 34% through 2018. It also has the highest insider ownership percentage – 17.3% — than all of its peers.

It has always carefully managed its debt, and generated exceptional cash flow, even during the financial crisis that destroyed many other hotel companies. As a result of its exceptional financial management, it has been able to engage in more flexible transactions than its peers.

Best of all, thanks to its hotel portfolio’s routinely high occupancy and pricing power, Ashford has maintained a generous dividend for years – current paying 9.72%.

LTC Properties

What is it?

LTC properties invests in senior housing and health care properties, using a variety of specialized transactions, known as “structured finance”, as well as more traditional mortgages, sale-leaseback transactions, and mezzanine lending. It has 200 properties it has invested in across 28 states, including over 100 assisted living communities, and almost 100 skilled nursing centers.

What makes it a good stock?

LTC has one major element going for it that makes it worth investing in – people are aging and they need care. Along with that comes money to pay for that care, and in the case of older people, there is an unlimited source of that money known as “Medicare”.

There are about 9,000 people becoming eligible for Medicare every day as the baby-boomer generation retires. What could be better than a constant source of business and a government with unlimited money to pay for it?

LTC has demonstrated its ability to optimize its property for rental, and chooses its properties very carefully. About 80% of its portfolio is allocated directly into properties. The rest is allocated towards mortgages.

Not only does LTC pay a dividend, but that dividend is paid monthly, not quarterly, and amounts to about a 5% annual yield. That dividend goes up almost every year, and has increased at a rate of about 8% each year.