BMO is Investing in Real Estate Market Decline: These Dividend-Paying Stocks are Among its Top Picks

The real estate sector has become oversold, creating an opportunity for investors to consider buying in, according to BMO. Real estate is currently the only S & P 500 sector in the red this year, with a 6% decline. BMO’s chief investment strategist, Brian Belski, believes that this underperformance is a historical inflection point that could lead to a turnaround in the coming months. Belski pointed out that real estate investment trusts (REITs) have historically outperformed by about 17% in the year following similar troughs. He also noted that REITs have been unfairly punished in response to interest rate trends, as they have historically performed well in both falling and rising rate environments. Fundamentals also appear strong, with free cash flow increasing, debt decreasing, and payouts rising.

BMO has identified several REITs that it rates as outperform, providing potential opportunities for investors to earn income through dividends while waiting for a rebound. Boston Properties, a company that develops, owns, and manages workspaces across the country, offers a 6.4% dividend yield. Despite the challenges faced by office REITs during the Covid-19 pandemic, Belski believes that the trend is shifting as people return to work. Equinix, a data center REIT, saw its stock rally more than 11% following an earnings beat. The company benefits from the rapidly evolving AI landscape, which is driving economic expansion. Ventas, a company with a portfolio of senior housing communities, stands to benefit from the aging population. Lastly, Host Hotels & Resorts, which owns luxury and upper-upscale hotels, has a 4.4% dividend yield and reported strong financial results for the first quarter.

Overall, BMO believes that the current weakness in the real estate sector presents a dip buying opportunity for investors. With historical data pointing to potential outperformance in the year following such troughs and strong fundamentals in place, now might be a good time for investors to consider adding real estate stocks to their portfolios. By focusing on REITs that offer dividend yields and have potential upside, investors can potentially earn income while waiting for the sector to rebound. With the belief that the death of commercial real estate is premature and with factors such as the aging population and digital initiatives driving growth in certain sectors, the real estate sector may be poised for a turnaround in the coming months.