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REITs Gaining Ground in S&P 500

By Nate Parmelee – Updated Nov 15, 2016 at 6:46PM

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Boston Properties and Kimco will be added to the S&P 500 over the next few days.

Standard & Poor's has announced that Boston Properties (NYSE:BXP) and Kimco Realty (NYSE:KIM) are being added to the S&P 500 index to replace Cinergy (NYSE:CIN) and Jefferson-Pilot (NYSE:JP), which are being acquired. Boston Properties is set to join the index this Friday and Kimco next Monday.

With their addition to the S&P 500, Boston Properties and Kimco join nine other real estate investment trusts, or REITS, in the S&P 500, including Equity Office Properties (NYSE:EOP), Simon Properties Group (NYSE:SPG), and VornadoRealty Trust (NYSE:VNO).

There are a few things that we can take away from the addition of two more REITs to the S&P 500, but the most important item is that REITs continue to become more accepted as mainstream investments. Arguments can ensue as to whether REITs are good values now, but the National Association of Real Estate Investment Trusts has data from Ibbottson Associates showing that a stock portfolio with a 10%-20% allocation to REITs outperformed an S&P 500-only stock portfolio from 1972 to 2004 and did so with less risk. For this reason, REITs deserve consideration in most portfolios.

I'm glad to see that two of the REITs that I think are among the best-run in the industry are being added to the S&P 500. However, I'm a bit disappointed, because I had been eyeing Kimco for a possible spot in my own portfolio. The 10% run-up in price over the last couple of weeks and now an additional 7% increase with last night's announcement by the S&P have taken the shares outside where I feel comfortable starting a position. Still, these are two well-run companies, and for investors considering REITs, both belong on a watch list.

For more REIT-related Foolishness:

Because REITs are among some of the best dividend-payers available to investors, we have recommended a handful of them to subscribers of Motley Fool Income Investor , whose selections have bested the market by an average of more than 3 percentage points. Clickherefor a 30-dayfreetrial to see what Income Investor is all about.

Nathan Parmelee has no financial interest in any of the other companies mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Simon Property Group, Inc. Stock Quote
Simon Property Group, Inc.
SPG
$90.18 (-2.17%) $-2.00
Boston Properties, Inc. Stock Quote
Boston Properties, Inc.
BXP
$77.11 (-0.94%) $0.73
Kimco Realty Corporation Stock Quote
Kimco Realty Corporation
KIM
$18.81 (-1.88%) $0.36
Vornado Realty Trust Stock Quote
Vornado Realty Trust
VNO
$24.44 (-2.24%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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