Here Are My Top 3 Real Estate Stocks to Buy Now

With interest rates likely to keep dropping, three real estate stocks are strong buys for income-focused investors.

shoppers in an indoor mall

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Falling interest rates are tailwinds for all sectors in general — and real estate in particular. Real estate investment trusts (REITs) could have a bull run in 2025 when interest rates eventually settle between 2.5% and 2.75% from a peak of 5% at the start of 2024.

We can already see this in the real estate sector’s performance so far. As of this writing, the sector’s year-to-date gain is 10.24%. It seems the terrible years for REITs are over and recovery has begun.

Here, I want to highlight three REITs from different real estate sectors that are strong buys today. Beyond their potential for positive returns, the stocks also have dividend yields of 5% or more and pay out monthly. Investing in any one of these would give you an additional income stream in your monthly budget.

Retail

Investors wouldn’t touch retail REITs with a ten-foot pole during the pandemic. Leasing activity soured because of government-mandated lockdowns and social distancing. However, Primaris (TSX:PMZ.UN) has been showing signs of life.

At $15.59 per share, its year-to-date gain is 18.23%, and its trailing one-year return is 24.72%. Current investors enjoy a 5.34% dividend yield.

Primaris is the only enclosed shopping centre-focused REIT. The $1.51 billion institutional landlord owns 38 large format shopping centres in Canada’s growing mid-sized markets. In Q2 2024, rental revenue, net operating income (NOI), and net income increased 25%, 24.4%, and 29.6%, respectively, compared with Q2 2023. 

Management sees a consolidation opportunity on the horizon, and Primaris could buy up properties as the sector rebalances.

Residential and industrial

Like Primaris, H&R (TSX:HR.UN) is outperforming in 2024. H&R is a $2.86 billion fully internalized REIT that owns residential, industrial, office and retail properties in North America. However, a strategic plan to change that mix is in motion.

CEO Tom Hofstedter said H&R is repositioning as a more simplified growth and income-oriented REIT. The primary focus will be on residential and industrial properties. In Q2 2024, net operating income decreased 5.3% year over year, to $144.5 million, following a $774 million sale of properties. Nevertheless, overall portfolio occupancy remained high at 96.9%.

Commercial and residential

Choice Properties (TSX:CHP.UN) owns, operates, and develops commercial and residential real estate. The $4.78 billion REIT has more than 700 income-producing properties and takes pride in its national footprint. Its retail assets account for 77% of the total portfolio, and its lease contracts are mainly with necessity-based grocery-anchored tenants. A competitive advantage is its long-standing strategic relationship with Loblaw (TSX:L).

Choice Properties has been profitable in the past two years ($770.5 million average net income) even in a high interest rate environment. If you invest today, the share price is $14.57 (an 8.88% gain year-to-date) with a corresponding 5.2% dividend yield.

Back in investors’ radars

Many market analysts see further runways for REITS as the rate-cutting cycle continues. They expect yield-chasing investors to return and plow their money into generous dividend-payers like Primaris, H&R, and Choice Properties.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Primaris Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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