Real estate investing is considered a good way to diversify a portfolio because not only has real estate itself shown its resilience through all kinds of market conditions, but it gives you the feeling of actually owning something. It's real.
There are lots of ways to buy real estate in the stock market too, including in the form of the 225 or so publicly traded real estate investment trusts (REITs). About 145 million Americans own REIT shares, and REITs themselves own more than 503,000 real estate assets across the country, according to the Nareit trade group.
While both the S&P 500 itself and the FTSE Nareit All Equity REITs index are down about 19% so far this year, you don't have to settle for that. Some REITs are outperforming the greater market right now: LTC Properties (LTC 0.98%), Sabra Healthcare REIT (SBRA 1.71%), and W.P. Carey (WPC 2.85%).
This chart shows how these three REITs and the S&P 500 have performed so far this year in total return, which takes into consideration both share price and dividend payouts.
Healthcare REITs posting healthy returns
LTC Properties and Sabra Health Care REIT are both healthcare REITs involved in providing specialized living settings to aging and other vulnerable populations.
LTC Properties has 181 investments that are about 50% each seniors housing and skilled nursing properties. Sabra has 416 properties in its portfolio, with 279 skilled nursing centers and the rest scattered among senior housing communities and behavioral health and specialty hospitals.
This sector was particularly hard hit as COVID-19 forced lockdowns and hurt occupancy both because of loss of life and families' fears of using such facilities during the pandemic. Both of these companies have seemingly weathered the storm.
LTC says it grew net income year over year in the first quarter of 2022 while continuing to collect nearly 100% of its expected rent and buying 11 senior housing communities in Canada in a joint venture for about $236 million.
So far this year, LTC stock is up about 16% in total return and is currently yielding a healthy 5.9%. Sabra stock, after jumping 20% in May, is up about 9.4% year to date in total return and yielding an even healthier -- in fact, inflation-beating -- 8.4%.
A portfolio diversified geographically and by industry
W.P. Carey is a widely held, diversified REIT with a market cap of about $16 billion. It has a portfolio of about 1,300 net-lease properties that are fairly evenly distributed geographically in the U.S. and in Europe among industrial, office, retail, and self-storage buildings.
That diversity, along with rent flow that is 60% from leases tied to the consumer price index, has helped this REIT post market-crushing performance, nearly quadrupling the S&P 500 in total return since it went public in 1998.
W.P. Carey stock is now up about 0.6% for the year and yielding about 5.2% after raising its dividend for 26 straight years. With a portfolio of 157 million square feet that's 98.5% occupied, and 99% of its leases containing rent escalations, this market outperformer is positioned to provide more passive income and share price growth going forward.
Beating the markets now and the promise of more to come
LTC Properties and Sabra Health Care REIT are in much the same business while W.P. Carey is in a league of its own as a truly diversified REIT. All three have done well this year and I think you could do worse than considering any or all of these as you mull your next move in this murky market.
