Motley Fool investors have been considering real estate investment trusts (REITs) a lot lately. The reason is simple. Not only could you see your shares grow after the pandemic, but REITs must pay out 90% of income after interest to shareholders. This usually comes out as dividends. Given the volatile situation due to COVID-19 we find ourselves in, it’s clear that dividend income is a great way to offset risk. However, not all of these cheap stocks are strong options.
I would urge Motley Fool investors to not just pick up any REIT that touts itself as cheap stocks. Instead, look for emerging sectors where you’re likely to not just see shares growth, but dividends as well. Here are four options.
The automotive industry is a strong one to consider for an economic recovery. Automotive Properties REIT (TSX:APR.UN) in particular saw revenue slide during the pandemic, as it focuses on the ownership of automotive dealerships. However, that’s been changing recently. The company announced during its earnings report that it collected 100% of lease agreements. Net income also went from a loss last year to a profit this year, making way for future acquisitions.
This is one of the cheap stocks to consider among REITs; however, despite this good news, it’s still cheap. Currently, Motley Fool investors can pick up the stock with a P/E ratio of 6.48! Then you can take advantage of a 6.10% dividend yield. Shares are up 27% year to date and climbing.
It’s obvious that industrial and office spaces are going to start climbing in use post-pandemic. True, companies will have to adjust to the new work-from-home lifestyle, but that just means making more opportunities with the building space these companies have. There are still lots of cheap stocks set to explode as people return to work, including Nexus REIT (TSX:NXR.UN).
Nexus focuses on acquiring industrial, office, and retail properties in North America. In fact, the company recently added $112.1 million in shares to help fund a $230.4 million acquisition in Saskatchewan and New Brunswick. The lease agreements the company takes on last more than a decade, offering investors a strong, stable income. Yet it remains one of the cheap stocks to buy with a P/E ratio of 5.41 and a dividend yield of 5.28%. Shares are up 64% year to date.
Sticking to the office theme, Dream Office REIT (TSX:D.UN) is another solid option for investors looking for cheap stocks. The company focuses mainly on Toronto office buildings, with management already planning for a return to work. It’s just in time too, with revenue shrinking and its occupancy rate falling during the time everyone worked from home.
But that means this is one of the cheap stocks Motley Fool investors can pick up for a huge rebound. Shares are already up 22% year to date, with analysts expecting another 7% in growth for the rest of the year. Meanwhile, you can pick it up at a valuable 13.16 P/E ratio and a dividend yield of 4.28%.
Slate Office REIT
Sensing a pattern? Office spaces are simply where Motley Fool investors will likely see the largest rebound. As businesses figure out the balance between work from home and in office, there will be a rise in revenue in at least the short term. That also gives companies like Slate Office REIT (TSX:SOT.UN) time to adjust. The company has a portfolio throughout North America, but here’s the really great part. About 60% of its portfolio is covered by government or credit-rated tenants. These are long-term occupancy clients that simply aren’t going anywhere.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AUTOMOTIVE PROPERTIES REIT.