Real Estate investment trusts offer investors an opportunity to enter the real estate market without ever actually owning any property. REITs are very important in helping investors gain exposure to real estate in order to diversify their portfolio.

The basic benefits of REITS are that they offer high yields, diversification, tax advantages and liquidity. For most investors, liquidity is the biggest advantage as a stock in simply much easier to sell then a house.

In the current market environment, when interest rates continue to be under pressure, REITS become more attractive because of their higher yields.

The chart below shows one of the more popular REITs Simon Property Group (SPG - Analyst Report), which is a Zacks Rank #3 (Hold). Also shown is the Vanguard REIT ETF (VNQ - ETF report), which has a Zacks ETF Rank #2 (Buy).  Over the last five years, both Simon Property and the ETF have outperformed the S&P 500, with Simon up a whopping 89%.

Now let’s explore four top ranked REITs that would be suitable for an investor looking to enter the space.

Realty Income (O - Snapshot Report) is a Zacks Rank #2(Buy) that is a self-administered and self-managed real estate company that deals in commercial real estate. It separates itself form most REITs by paying a monthly dividend instead of a quarterly dividend. The company is exposed to the retail sector, but is highly diversified, which takes away downside economic risk.
Realty has a market cap of $15 Billion and a Forward PE of 21. The company sports a Zacks Style Score of “A” in Momentum and has a dividend yield of 4.00%.

Earnings were earlier this month and the stock responded positively with a 7% move higher. While the bottom line came in slightly below the expectation, revenue beat with $263.7 Million coming in verse the $261 Million expected. Occupancy was up to 98.4% versus the 98.3%

The stock has performed very well as the company continues to grow the dividend. Unfortunately, the higher the stock goes the lower the yield. Any pullback makes the yield more attractive and investors should jump on stock if they get the chance.

Public Storage (PSA - Analyst Report) is a Zacks Rank #2(Buy) that operates as a REIT that engages in the acquisition, development, ownership and operation of self-storage facilities. The California company operates in the United States and Europe.

Public Storage has a market cap of $43 Billion and a Forward PE of 26. The company sports a Zacks Style Score of “A” in Momentum and has a dividend yield of 2.72%.

Earnings were reported a couple weeks ago with Q4 coming in at $2.45 versus the $2.42 expected. However, revenue came in light at $503 Million versus $615 Million expected.

The stock responded well, shooting up 4% after the numbers. Looking at the chart below, we see a steady trend higher, with the company surprising on EPS to the upside eight out of the last 10 quarters.

Essex Property Trust (ESS - Analyst Report) is a Zacks Rank #2(Buy) that operates as a REIT that acquires, markets, leases, manages and develops construction of multifamily and retail properties.

Essex has a market cap of $14 Billion and a Forward PE of 19. The company sports a Zacks Style Score of “A” in Momentum and has a dividend yield of 2.78%.

Earnings came out earlier in the month, with the company beating the bottom line by a penny. The company also went on to guide fiscal year 2016 range higher, now expected at $10.72-11.12 versus the $10.88 expected.

The stock didn’t perform well after earnings, selling off almost 10% in the five trading days after the report. However, the stock has rallied and is now back at the pre-earnings level of $210. With December highs at $244.71, this looks like a good entry against the post earning lows of $191.25.

Omega Healthcare (OHI - Snapshot Report) is Zacks Rank #2(Buy) that operates as a REIT that deals in the healthcare sector. The Maryland based company invests in income producing operations, primarily in long-term care facilities.

Omega has a market cap of $6 Billion and a Forward PE of 10. The company sports a Zacks Style Score of “B” in Momentum and has a dividend yield of 7.37%.

Earnings came out earlier this month with the company reporting Q4 of $0.81 verse the $0.79 expected. Revenues came in at $210.5 Million verse the $205 Million expected. Guidance came in strong as the company now expects FY 2016 at $3.25-3.30 verse the $3.22 expected.

The stock bottomed just under $27 and now sits just under $32. The stock is well off its 2015 high of $42 a share and if the dividend is maintained as is, there is plenty of room higher from here.

In Summary

REITs should be part of a diversified portfolio for those looking for income in the form of dividends. Whether it is individual stocks or ETFs, REITs offer a way to enter specific real estate markets with no issue of liquidity.