Despite the 15% to 20% jump in average home values, Zillow (Z) stock is taking a beating.
The price per share dropped 44% this month, and famous stock picker Cathie Wood sold over $6 million worth of stock in the company.
Soon after, she expressed troubling concerns about the future of the housing market.
The numbers look healthy, but when a heavy hitter like Woods says to practice caution, we listen.
Still, real estate holds its value as an irreplaceable physical asset and should always be represented in your portfolio.
Instead of buying stock in real estate companies, you should invest in the safer alternative: real estate investment trust (REIT) stock.
While these corporations are a part of the real estate market, they’re often more profitable than other stocks in the sector.
REITs can avoid taxes by paying shareholders a higher amount of their taxable income than other public companies. As a result, you’ll typically earn higher dividends.
In 2017, the S&P 500 list of public companies paid a median tax of about 30%, at a cost to shareholder earnings, while public REITs paid 90% of their taxable income to avoid being taxed altogether.
There’s also the matter of long-term appreciation.
Holding onto REIT stocks for a while can bring hefty returns, due to those high dividends and the cyclical nature of their business model.
REITs, like value stocks, tend to be consistent during market fluctuations, since there has to be some form of cash flow available. It’s a great way to keep real estate stocks in your portfolio without risking a major loss when the market is taking a hit.
You can also protect your investments from inflation since these kinds of companies can adjust their incoming revenue based on the state of the housing market.
Instead of being impacted by housing trends, REITs are able to ride them.
Why REITs Are the Superior Real Estate Investment
Public REITs regularly outperform the S&P 500 list, which is home to 500 of the largest publicly traded companies.
In order to be a REIT, a company needs a reliable stream of real estate income. While most S&P 500 companies are a gamble, you wouldn’t even be able to buy stock in a REIT if it didn’t have consistent cash flow.
Like fine art, real estate has intrinsic value that is determined by the state of the market. While inflation and other economic events can impact sell value, properties themselves never become worthless, like stocks of a failed company might.
With REITs, you also get exposure to lucrative industries with a lot less risk. For instance, buying COLD stock will let you profit from the food industry while investing your money into a reliable and profitable trust.
If the industry does well, you’ll make more money, and if not, you won’t suffer as you would when investing directly in those food companies.
In the last 40 years, public REITs have had less volatility than the S&P 500, mostly due to high dividend yields. Investors can rely on price support when the markets are down and strong returns when times are stagnant.
Ready to buy REIT stock? Let’s talk about Americold Realty Trust (NYSE: COLD) and why it’s the best REIT to buy right now.
Why Americold Realty Trust Is Our Best REIT to Buy
Sitting on a market value of $9.6 billion, Americold Realty Trust could be the push you needed toward profitable real estate investing. COLD is the largest public REIT that specializes in the cold storage space, owning 21% of that market in the United States.
Cold storage real estate is used by food companies, as well as corporations that create and house vaccines. By 2028, the global influenza vaccine market should reach $10.73 billion from $6.59 billion in 2021, promising a bright future for the already profitable REIT.
In 2020, the global cold storage market was worth $107.18 billion and is expected to reach over $122 billion by 2028. Americold’s revenue grew during the June 2021 quarter by 36%, and the company has been paying dividends since its IPO in 2018.
Servicing food industry giants like Kraft Heinz Co. (NASDAQ: KHC), Sprouts Farmers Market Inc. (NASDAQ: SFM), and Kroger Co. (NYSE: KR), the company is known for strong customer relationships and upstanding food industry values.
This has earned it a strong competitive edge and long-lasting success. Most of COLD’s customers have signed seven-year fixed commitment contracts, promising about 40% of their revenue.
Based on the company’s Q3 2021 revenue of $2 billion and its 242 warehouses all over Europe, North and South America, and Asia, COLD stands to grow quite consistently in the coming years.
This stock is incredibly profitable, and its current share price of $32.09 is a steal. Plus, it pays a well-above-average dividend yield of 2.72%, adding some nice income to your pocket even during volatile markets.
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Source: Money Morning