Real Estate Income Dividend – MarketBeat

Patient investors look for safer stocks when the VIX starts to rise to protect their portfolio or expose themselves to high-quality assets at potential discounts. Real estate income NYSE:O it could be one of those picks this cycle as part of a real estate stock play.

A new cycle is about to begin, this time sponsored by potential interest rate cuts by the Federal Reserve (Fed), and money will likely move into those sectors that have underperformed over the past year due to higher interest rates .

Realty Income could provide you with security and some decent upside potential.

All the mechanisms in play

Over the past 12 months there has been a widening gap in price action between Vanguard Real Estate ETF NYSEARCA: VNQ and the broader S&P 500.

Falling behind by up to 28.2% creates the potential for the sector to catch up with the rest of the market in the new cycle.

According to the FedWatch tool of ECM Group NASDAQ: ECMTraders are pricing in the fact that Fed cuts will likely hit the economy by June or May of this year.

You can learn more in real time by following what investors like Warren Buffett have been interested in buying lately. It’s no surprise that the Oracle of Omaha has been buying shares D.R. Horton Inc. NYSE: DHI AND PulteGroup Inc. NYSE: PHM in recent quarters, predicting a construction boom.

You can read all about why Buffett found value in construction stocks if you’re looking for safety and value.

When and if the Fed cuts interest rates, real estate is one of the sectors that typically tends to outperform the rest of the market, a trend that can be seen in 2020-2021, where Realty Income stocks have outperformed the S&P 500 by as much as 10%.

What is the expectation?

Suppose we look at the recent past to understand the future. If so, analyzing the recent increase Simon real estate group NYSE: GSP stocks may be the perfect example. As interest rates would fall, markets became more sympathetic to companies that had more debt on their balance sheets.

Debt makes up about 87% of Simon’s balance sheet. Realizing that not only real estate but also retail consumers would benefit from the Fed’s change, markets increased the stock price from around $100 per share up to $150, a 50% increase in just one quarter.

On top of that, the dividend yield paid by Simon shares was nearly 7% before the rally, making it a significantly attractive proposition in a time when US 10-year bond yields hovered around 5%.

So, how do you throw the Realty Income stock party? This company has significantly less debt, accounting for about 39.7% of its balance sheet, meaning markets may start to reward companies that carry much less debt until rate cuts are no longer a factor. certain event.

A 6% dividend yield makes the stock a much better proposition than today’s 10-year bond yields, which pay only about 4.3%. If history repeats itself here, that superior yield along with better-managed debt could make Realty a prime suspect for investment dollars to find a new home.

You can check out this thesis on how analysts currently feel about the two stocks. Assuming the company was already in the running, Simon analysts set a price target of $137.80 per share, which shows a downside of 8.1% from today’s prices.

In contrast, Realty Income has earned the love of its analysts by imposing a price target of $61.50 per share, directly implying that the stock needs to rise as much as 17.5% to meet that rating.

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