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3 property stocks better than an investment property

There is a huge appetite for residential investment property in Australia. However, there are a number of signs saying that the market could be about to turn. At the very least growth could be hard to find in most cities across the country.

I think there are many ways to profit from property without actually owning an investment property. One way is to invest in commercial property such as real estate investment trusts. Another way to profit could be owning a business that services property in some way.

Here are three property businesses that I think would make much better investments than an investment property right now:

DuluxGroup Limited (ASX: DLX)

DuluxGroup is the home improvement brand giant of Australia which owns brands like Dulux, British Paints, Selleys, Cabot’s and Yates. These brands are much more likely to have consistent earnings compared to some of the more cyclical areas such as construction.

The business has shown how name-brands can slowly and steadily increase revenue, earnings, the dividend and the share price.

DuluxGroup is currently trading at 19x FY18’s estimated earnings with a grossed-up dividend yield of 5.2%

REA Group Limited (ASX: REA)

REA Group benefits from property with the amount of properties that are leased and sold on its realestate.com.au site. It also owns stakes of international property websites.

I think REA Group could be one of the best ways to get exposure to property because of the importance of digital advertising these days to sell a property. This gives REA Group tremendous pricing power to increase prices over time.

REA Group is currently trading at 31x FY18’s estimated earnings with a grossed-up dividend yield of 1.9%.

Reece Ltd (ASX:REH)

Reece has carved out a position as the bathroom specialist of Australia. Bathrooms aren’t cheap and a lot of the money spent on bathrooms in Australia ends up in Reece’s stores.

It’s hard to say what will happen with Reece’s sales volumes during a slowdown of the economy but it should still see a good portion of earnings remain.

Reece is currently trading at 22x FY16’s earnings with a grossed-up dividend yield of 3.18%.

Foolish takeaway

None of these stocks are trading cheaply at the moment. If you’re looking for dividend income then I think DuluxGroup would be a pretty good choice. I expect REA Group will provide excellent long-term capital growth as long as investors are patient through any property downturn.

If you want to avoid the property sector altogether then I recommend looking at these dividend shares that could easily beat the market.

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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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