If you are an income-focused value investor, you’ve probably been drawn to REITs by their big dividend yields and perceived low-volatility. Over the last year, a few REITs have performed well, while many others have been very disappointing. This article highlights 8 big dividend REITs that we believe are attractive and worth considering, but all for different reasons. Without further ado, here is the list.
8. STAG Industrial (STAG), Yield: 5.0%
Stag is an industrial REIT that has actually been outperforming the market over the last year, and it still has more room to run.
But our caveat to investors is to watch it closely. If you don’t know, STAG invests in somewhat “off-the-beaten path” industrial properties. Rather than chasing after the traditional prime location properties that many of its industrial REIT peers compete for, Stag invests in “tertiary” properties (not primary, not necessarily secondary, but tertiary location properties). Stag believes it can reduce risks and keep returns high by building a diversified portfolio of these properties.
Stag’s strategy (and its stock price) has been (for the most part) booming since the company became public in 2011. Stag's been booming mainly because the economy has been recovering, and so too have the properties in which Stag invests. However, our two specific caveats with regards to Stag are: (1) it’s a higher volatility and higher beta stock (many REIT’s have betas below one, Stag’s is above one) which means when the market pulls back, Stag tends to pull back more (this can create attractive buying opportunities), but (2) if and when we do enter a recession (we haven’t had one during Stag’s existence as a public company), Stag may get absolutely slaughtered because it may lose lots of tenants and be unable to replace them because of the tertiary locations of many of their properties.
Our recommendation is to consider buying Stag on pullbacks (because Stag will likely have pulled back more than the rest of the market (as we saw in early 2016) because of its higher beta) as long as you don’t believe the pullback is the first step leading into a recession, in which case we believe Stag will be very challenged. For more detailed information on our views about Stag, consider our recent members-only article:
7. Brookfield Property Partners (BPY), Yield: 5.4%
Like many REITs with exposure to retail real estate, Brookfield’s stock price performance has been sub-par in recent years.
And its performance got even worse over the last week after it announced it is pursuing an acquisition of retail REIT GGP Inc (GGP).
If you do not know, Brookfield is a smart value investor with a history of buying properties at very low prices, and then selling them years later at much higher prices (after they’ve helped improve the properties and the market has turned around). We are actually quite encouraged about the future of someretail REITs considering Brookfield’s implied announcement that retail real estate is bottoming (why else would they want to acquire GGP?).
However, we also have some long-term concerns about the ownership structure between Brookfield Property Partners and its parent organization Brookfield Asset Management (BAM). Specifically, there seems to be incentive for BAM to act in its own best interest, not necessarily in BPY’s best interest.
Nonetheless, we’re increasingly encouraged by the low valuations in retail real estate (particularly prime location retail real estate, like GGP’s properties), and our views are reinforced by Brookfield’s actions as well. For our more detailed analysis of this deal between GGP, BPY and BAM), and more ideas on how to play it, consider our recent members-only article:
6. Whitestone (WSR), Yield: 7.9%
Sticking with our high-quality, prime-location, retail REITs “may be bottoming” theme, Whitestone is an interesting opportunity that is worth considering. And unlike Brookfield, Whitestone doesn’t have the same conflict of interest questions. Plus Whitestone's big dividend is paid monthly.
Whitestone is a pure-play community-centered retail REIT that acquires, owns, manages, develops and redevelops high quality “e-commerce resistant” neighborhood, community and lifestyle retail centers principally located in the largest, fastest-growing and most affluent markets in the Sunbelt.
In our view, Whitestone is the type of retail REIT that has a good chance of not only surviving the threats of the evolving (and rapidly growing) online retail world, but also flourishing simply because of its attractive experiential locations. When it comes real estate, we believe the old saying “location, location, location” still applies. If you are interested in learning more about Whitestone, consider our recent detailed members-only report:
5. Realty Income (O), Yield: 4.5%
Switching from a smaller market cap and lessor know REIT, Realty Income is a large cap REIT that is well-known to many investors as “The Monthly Dividend Company.” This well-diversified 80% Retail / 13% Industrial / 5% Office / 2% Agricultural REIT has a long-track record of success, but its price is down (and significantly underperforming the market) thereby leaving many investors wondering “what have you done for me lately?”
From a “state of the market” perspective, Realty Income has a lot of good things going for it, especially if you are a contrarian “value” investor. For example, the market has been in a “pro-growth stock” mode since the 2016 election where growth stocks (like FANG stocks) have been significantly outperforming value stocks like Realty Income (and REITs in general). However, we believe the FANG trade will eventually break (or at least slow down) and financially strong value stocks like Realty Income will come climbing back, especially considering it’s big well-covered monthly dividend. For a more detailed analysis of our views on Realty Income, consider our recent members-only report:
Our Top 4 High-Income REITs are reserved for members-only. We currently own three of the top 4, and members can access that report here...
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