The real estate market, especially the residential end of it, has been quite shaky for a while. Before the pandemic, many investors were convinced that the real estate bubble was going to pop at any time. Thankfully, that didn’t happen during the pandemic or it would have made the situation even worse.
But the pandemic probably changed investors’ mindset about real estate investments. Instead of shying away from the real estate, they might prefer to invest in this tangible market, especially if they fear that the stock market will stay unstable for a while yet.
The major barrier to real estate investment is still the cost of investing, so if you want to invest in this market by circling around that barrier, you will, ironically, have to take the stock market route. There are three REITs that should be on your radar for 2021.
A commercial REIT
It might be a stretch to say that CT REIT (TSX:CRT.UN) is a REIT created specifically around one tenant — i.e., Canadian Tire — but that seems to be the case anyway. It’s the most prominent client and unitholder of the REIT and has long-term agreements, making REIT’s cash flow relatively steady. But it also overexposes CT REIT to the business problems of Canadian Tire, because if its most significant tenants start losing business and can’t pay on time, the REIT will suffer.
That doesn’t seem to be the case right now, and even though this REIT is not a grower, it displayed a true potential for recovery after the pandemic crash. The stock has been moving steadily up and is about to reach its pre-pandemic highs. Right now, the company is offering a juicy 5% yield at a safe 80.5% payout ratio. The REIT owns and operates 350 properties country-wide.
An industrial REIT
2020 was one of the worst years for the job market, but 2021 is likely to be different — a year of hope, recovery, and new jobs. Whether it gets kick-started by optimism or government initiatives, if the economy properly bounces back in 2021 and productivity increases, it would be great for industrial REITs like Summit Industrial Income REIT (TSX:SMU.UN).
Even if the 3.89% yield doesn’t entice you to consider this REIT, its growth potential should. Its 10-year CAGR (dividend adjusted) is 31%, and if it can keep it up, it won’t just be explosive in 2021. It would significantly expedite your portfolio’s growth rate. It owns a total of 161 industrial properties in the country, though 98% of its portfolio is concentrated in three provinces.
A warehouse and logistics REIT
Granite REIT (TSX:GRT.UN) shines for a number of reasons, among other REITs. It’s the oldest aristocrat in the REIT industry; it has a geographically diversified commercial portfolio of the warehouse, logistics, and industrial properties, and its capital growth potential. The company has been steadily growing its market value for at least five consecutive years, and the CAGR comes out to about 21.1%.
The 3.84% yield is attractive enough as well, especially when you know that the payout you get will most likely keep increasing year over year. The payout ratio is relatively safe as well (50.75%). But its history is not the only reason the company might have a great 2021. The warehouse and logistics business is expected to boom with the rise of e-commerce, and Granite is well positioned to take advantage of that boom.
REITs are known for generous yields and attractive payouts, but these three offer something more. They provide decent capital growth potential and add both passive income and growth to your investment portfolio. And even if the housing market crashes, the three REITs are likely to be relatively safe, thanks to their commercial orientation.
Speaking of REIT stocks that are likely to be explosive in 2021...
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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST and SUMMIT INDUSTRIAL INCOME REIT.