Investing

A Big Correction May Be Coming: Goldman Sachs Says Buy High-Dividend REITs Now

Since the lows in March of 2020, the stock market has doubled. Think about that for a moment. The S&P 500 closed at 2,237 on March 23 of that year and closed Tuesday at 4,448 just shy of an incredible 100% gain in 17 months. Numerous reasons for this have been cited, including the incredibly loose monetary policy that has been in place for years, but went nuclear when COVID-19 surged in the winter of 2020. Toss in the WallStreetBets crowd, which had government hand-outs to trade with while locked up at home, and you had all the ingredients for the proverbial melt-up.

The truly scary situation for investors is that the market hasn’t had a 5% correction in almost a year, which is very unusual. The difficult question for investors is what to do now? Sell everything and go to cash? That would be a great idea if money markets paid anything. The highest yielding money market savings account pays a lousy 0.40%. Banks literally pay almost zero for funds held in checking accounts.

One idea for those worried about a massive sell-off is to move to safe stocks that pay dividends. While they will not be immune to a big risk-off move, the chances are good they will hold up better than crowded technology or meme stocks. Goldman Sachs is very positive on high-dividend-paying real estate investment trusts (REITs). Five are rated Buy at the firm and make good sense now for investors who are more conservative. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Extra Space Storage

This top REIT is a safe way for investors to own the self-storage sector. Extra Space Storage Inc. (NYSE: EXR) is a fully integrated, self-administered and self-managed REIT headquartered in Salt Lake City, Utah.

Like many self-storage companies, Extra Space offers rentable storage space offering customers conveniently located and secure storage units across the country, including boat storage, recreational vehicle storage and business storage.

As of the fourth quarter of 2020, the company owned or operated 1,971 self-storage stores in 40 states, the District of Columbia and Puerto Rico. The portfolio consists of approximately 149.2 million square feet of rentable space and 1.4 million units, making the company the second-largest owner/operator of self-storage stores and the largest self-storage management company in the country.

Holders of Extra Space Storage stock receive a 2.28% distribution. The Goldman Sachs price target for the units is $213, while the consensus target is just $140.33. The stock closed on Tuesday at $176.38.