Real Estate Select Sector SPDR Fund

XLRE

Market cap $7.67B

Otis Worldwide Corp and Build-A-Bear Workshop offer attractive long-term dividend growth opportunities amid recent market pullbacks. OTIS remains fundamentally strong, with raised EPS guidance, aggressive share buybacks, and expectations for double-digit growth as economic headwinds dissipate. BBW impresses with robust year-over-year earnings growth, a debt-free balance sheet, ongoing share repurchases, and strategic expansion, supporting future dividend growth.

VNQ is a stable choice for income-oriented retirees. SCHH is a good choice for investors who only want to invest in property REITs.

REITs are poised for a strong comeback. Recent headwinds are now turning into tailwinds. Even then, high-quality REITs remain heavily discounted.

Matt Camuso, Head of ETF Solutions at BNY Investments, says there are $13 trillion of assets in ETFs. That's compared to $5 trillion a year prior.

The stock market is historically expensive. Even as a recession is more and more plausible in the near future. Fortunately, many defensive dividend payers remain opportunistic.

After a strong August, REITs faded slightly in September (-0.73%), pulling the REIT sector's year-to-date average total return down to (-1.74%). Mid-cap REITs (-0.92%) averaged the lowest total return in September. Large caps (-0.29%), micro caps (-0.79%), and small caps (-0.83%) averaged modestly smaller declines. Only 37.4% of REIT securities had a positive total return in September.

Essential Properties Realty Trust and NNN REIT present attractive long-term buying opportunities due to strong fundamentals and resilient income profiles. EPRT boasts high occupancy (99.6%), low leverage, and a 4% yield, with double-digit upside potential if it returns to historical multiples by 2027. NNN offers a 36-year dividend growth streak, a 5%+ yield, and solid liquidity, despite recent occupancy dips and tenant headwinds.

Public REITs remain a compelling portfolio diversifier, offering inflation protection, steady dividends, and downside risk mitigation amid a crowded investment landscape. REITs are currently undervalued, with double-digit total returns possible, supported by a 4% dividend yield and 4-6% annual growth. Despite recent outflows and competition from alternatives, a 10-20% allocation to real estate - mixing public and private - is still recommended for balanced portfolios.

The last interest rate cut was in December 2024. Nine months later, Federal Reserve Chair Jerome Powell and the Federal Open Market Committee (FOMC) decided it was again time to lower the Fed's benchmark federal funds rate -- this time by a quarter of a point down to a range of 4% to 4.25%.

Fed's strong signal of imminent rate cuts is reigniting enthusiasm for commercial real estate, driving REITs and XLRE higher. XLRE stands out for its focus on high-quality, large-cap REITs and real estate firms, offering diversification and a 3.3% yield. The fund has outperformed peers by avoiding riskier mortgage REITs and emphasizing balance sheet strength and industry leadership.