Published Thu, 27 Feb 2020 08:45:00 -0500 on Seeking Alpha
REITs are a must-own class for income investors.
Through tax law and tradition, REITs pass a substantial amount of their income directly to shareholders through dividends.
Many REITs have become overpriced, so it's important to dig for value.
We identify five of the highest-yielding REIT sectors.
Co-produced with Beyond Saving
REITs play a very strong role in our Model Portfolio, by paying higher than average dividends due to tax laws that require minimum distributions at 90% of taxable income and tradition that most REITs pay out more than 100% of their taxable income. This makes them prime candidates for investment as they align well with our Income Method.
REITs are pass-through corporations, meaning that they are exempt from most taxes at the corporate level, as long as the majority of their income is passed through to investors. This allows investors to directly benefit from the cash flows that come from real estate investments, whether physical real estate or through mortgages.
Due to scale, REITs can generally obtain capital much more cheaply than we could on our own, and they are capable of managing large portfolios of properties. Real estate is needed by every business in existence, making it possible to be exposed to a wide variety of sectors through REITs.
In 2020, we want to rebuild our exposure, but we want to do so intelligently. We are not willing to pay any price. When we invest, we demand to be paid. Here's a look at five high-yielding REIT sectors, four we are bullish on, one we are avoiding.
Agency mREITs profit from borrowing short-term funds and investing in residential mortgage-backed securities (MBS) that are guaranteed by Government Sponsored Enterprises (GSEs) like Fannie Mae or Freddie Mac.
The vast majority of residential mortgages in the US are sold to a GSE, which then "securitizes" the mortgages and sells them to investors. Investors will buy an MBS made up of thousands of underlying... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|AMERICAN CAPITAL AGENCY||15.64||0.0||-1.54||1.92||12.21|
|RLJ LODGING TRUST||17.42||22.0||0.79||1.32||7.69|
|HERSHA HOSPITALITY TRUST||15.01||0.0||-0.54||1.12||7.42|
|CEDAR SHOPPING CENTERS||2.87||31.9||0.09||0.20||7.30|
|SIMON PROPERTY GROUP||155.27||20.8||7.48||8.40||5.21|
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