With nobody expecting interest rates to rise much,
this is a good time to consider real estate investment trusts,
better known as REITs. Why?
REITs, which many investors buy for the dividends,
suffer in a rising rate environment when the higher rates reduce the
relative value of existing dividend streams. Thus, when rates drop,
existing dividend streams become relatively more valuable.
Most REITs own real estate properties such as shopping centers,
apartment complexes, industrial parks, etc., but some invest in
loans secured by real estate. Although they trade like stocks, REITs
are different from regular corporations. They donít pay federal
income taxes if they distribute at least 90% of their taxable income
REIT dividends are mostly taxed as regular income instead of the
lower 15%/20% capital gains rate. So itís best to keep REITs in
Growth + High Dividends
The four REITs Iím going to describe below are unusual for two
reasons. First, all are exceptionally fast growers, at least in
terms of revenues. Thatís important because, no matter whether
youíre talking about REITs or tech stocks, all else equal; those
holding the fastest growers make the most money. Second, all pay
relatively high dividends, ranging from 4.3% to 8.5% dividend
yields. Here are the REITs.
CareTrust REIT (CTRE): Owns 191 senior housing and
healthcare-related properties in 24 states that it leases to
third-party operators. Year 2018 revenues rose 15% vs. year-ago.
Returns (share price plus dividends) totaled 80% (not a typo) over
the past 12-months and averaged 29% annually over the past three
years. Quarterly dividends vary with cash flow. Dividend yield based
on the last four quarters was 4.3%.
Arbor Realty Trust (ABR): Provides financing secured by
multifamily, seniors housing, healthcare and other commercial real
estate properties. Annual revenues grew 18% last year. Returns
totaled 61% over the past 12 months and returned 32%, on average,
annually, over the past three years. Arbor has increased its
dividend payouts by 65% over the past two years. Current dividend
yield is 8.3%.
WellTower (WELL): Owns more than 1,000 senior housing,
medical office and skilled nursing/post acute care properties in the
U.S., Canada, and the U.K. Annual revenues rose 18% last year.
Returns totaled 54% over the past 12 months and averaged 10%
annually over three years. Current dividend yield is 4.4%. WellTower
has not raised its quarterly payout since January 2017 when it
announced a 1% dividend hike.
EPR Properties (EPR): Owns properties in three major
categories, entertainment (movie theaters and family entertainment
centers), recreation (golf courses, ski areas, etc.), and education
(charter schools and private schools), that it leases to third party
operators. Revenues rose 18% in 2018 vs. year-ago. Shareholder
returns totaled 45% over the past 12-months and averaged 11%
annually over three years. Dividend hikes have averaged around 6%
annually and EPR is currently paying a 5.9% yield.
All returns data as of March 25, from Morningstar (Morningstar.com).
As always, those are my ideas. Do you own due diligence. The more
you know about your stocks, the better your results.