While stocks have been in bear market territory, now might be the time for investors to reassess their risk profile and consider some income-generating REITs. In this clip from "Ask Us Anything" on Motley Fool Live, recorded on June 21, Motley Fool contributor Rick Munarriz discusses how REITs can be an optimal way for investors to diversify their portfolios.
Rick Munarriz: I'm a growth investor. I've always been a growth investor. But in late 2020, I said, well, you know what? Some of my stocks have done very well when we're still crawling out of this situation. Let me diversify. I took some profits, and also just new money that I had added to my stocks. A lot of that money, not most, but a good chunk of it, went into REITs. But I didn't necessarily just say I'm just going to buy Realty Income (O +0.35%) because they have a monthly dividend check or I'm not going to buy the trendy real estate thing. I wanted to go with specific themes within the REIT industry. As Dan mentioned, it's medical buildings, medical doctors. I said, well, that's seems pretty stable as plenty. There's at least a half dozen that I know of medical REITs. We basically have medical centers or hospitals which had steady business through that. I talked earlier about the movie theater industry. There's a company called EPR Properties (EPR +0.32%), ticker symbol EPR, and they basically focus on experiential properties.
Movie theaters is their biggest because AMC (AMC 0.67%), for better, for worse, is their largest customer. But they also have a couple of Top-golfs for like golf driving ranges, even a couple of water parks. That's what they have, that's what they lease out. Even further down, it's this morning, one of the encouraging upgrades that happened was for American Tower (AMT +0.83%) and Crown (CCI +1.31%), CCI is the other one, AMT and CCI. They basically have antenna towers for smartphones and for data, which is something that is going to continue to grow over time. There are data centers, so you have Digital Realty Trust (DLR 0.97%) and Equinix (EQIX 0.27%). There's a couple of more that focus on, basically, you need a server in the Cloud computing revolution and that's what they own. These are low yielding REITs, but they're steady businesses that march to different beats of different drums. There's even a company that basically focuses on the cannabis industry. If you feel, "Hey, I think that's going to be thriving, it's innovative," IIPR their ticker symbol. It's Innovative Industrial Properties (IIPR 0.31%), I think.
Dan Caplinger: You got it, yeah.
Munarriz: Basically, they have growhouses in markets where it's legal, we're not talking about anything shady or illegal, but they rent it out to the cannabis companies to help their product and they just have the space, so that's what they focus on. These themes won't necessarily profit as well as the companies that are using them as customers if that business goes well. But if you believe that some of these businesses will be more important in the future, it definitely provides more stability in some of these REITs. They own an apartment building. That's a REIT. Or, they own shopping malls like Simon (SPG +0.17%) properties and that's a REIT. You could definitely find exactly what you think will happen in the future. In the next coming years, you're trying to game theory it out to see where things will go and find income-generating real estate income investment trusts that are focused exactly on what you think you're going to do. It's definitely a very interesting market. I think definitely a little bit of REITs. Again, that market did really well last year. It's not that it's going to be that monster return because if sector rotates back to the growth stocks in the latter half of 2022, and 2023, which is possible, and I'm hoping that happens even if I do own some REITs. I do think that may not be returned, but it's definitely a way to offset and diversify your risk profile.
