Real Estate Investment Trusts (REITs) to Invest in Now

Real estate investment trusts (REITs) to invest in now feature businesses that pay their shareholders at least 90 percent of taxable income, own properties that produce reliable rent payments and offer enhanced appeal because they have limited correlation to the stock market.

Those looking for REITs to invest in now could find them enticing as an alternative to low-rate certificates of deposit (CDs) and bonds that are vulnerable to falling interest rates. With the Federal Reserve’s Sept. 18 decision to reduce interest rates and analysts forecasting that a follow-up rate cut could occur later this year, investors could not be faulted for seeking the heightened yields offered by REITs.

“In a yield-challenged environment, the closest thing to a Holy Grail for income investors is REITs,” said Jim Woods, editor of Successful Investing, Intelligence Report and Bullseye Stock Trader. “For those who like the general REIT thesis, the Vanguard Real Estate ETF Shares (NYSE:VNQ) is a great way to play the sector.”

Chart courtesy of StockCharts.com

Cell Tower Company Is Among the REITs to Invest in Now

For investors who are willing to accept additional risk in hopes of achieving an outsized return, Woods said his favorite REIT is American Tower Corp. (NYSE:AMT). The company owns the land where many cellphone towers are located, he added.

“It’s a growth play and an income play,” Woods said.

Chart courtesy of StockCharts.com

Retirees May Be Enticed by REITS to Invest in Now

Bob Carlson, who heads the Retirement Watch advisory service, said retirees need more than income in their portfolios.

“I’ve said for some time this is an ideal economic environment for real estate investment trusts, and Cohen & Steers Realty Shares (CSRSX) has been proving my point in 2019,” said Carlson, who added he has owned CSRSX in his portfolio for a long time and will continue to hold it indefinitely.

Chart courtesy of StockCharts.com

In Carlson’s view, REITs are the ideal long-term investment, whether an investor already has retired or is planning for it. REITs have outperformed the S&P 500 over a long period and their lack of correlation with the stock index lets them earn positive returns when equities decline, as happened in the technology stock bust after 1999, he added.

“By owning commercial real estate, REITs benefit from a growing economy,” Carlson said. “They do especially well in a slowly growing economy because there’s less speculative overbuilding that causes rents and property values to collapse.”

REITs to Invest in Now Offer Inflation Protection

REITs also provide inflation protection, because they are backed by real estate assets, Carlson said. 

CSRSX may be the oldest mutual fund dedicated to REITs and is among the top performers over almost all time periods, according to Morningstar. The fund has a process of identifying the economic cycle to determine which REIT sectors to own and others to avoid. Then, the fund focuses on REITs in the sectors that have quality properties and management, as well as sell at reasonable prices.

The fund recently held only 40 positions, Carlson said. Almost 55% of the portfolio was in the 10 largest positions, while the top sectors were infrastructure, apartments, self-storage, data centers and health care, he added. 

Top REITs to Invest in Now

Top positions in CSRSX feature American Tower, Equinix (NASDAQ: EQIX), Welltower (NYSE:WELL), UDR, Inc. (NYSE:UDR) and SBA Communications (NASDAQ: SBAC).

Chart courtesy of StockCharts.com

Even investors who are wary about the risk of investing in stocks may find REITs appealing, since they may rise when the market indexes fall.

Income-Oriented Investors Are Among REITS to Invest in Now

Income-oriented investors are “always hungry” for the sweet spot between reliability and yield, but in the current low-rate environment the priorities shift, said New York-based money manager Hilary Kramer, whose new 2-Day Trader service has notched 13 out of 14 profitable trades with an average return of 15.3 percent since its launch. The Fed has stated that it will not be satisfied until inflation is trending at 2 percent a year, so that becomes the minimum return needed by an investor simply to keep buying power constant, she added. 

“Since everything in the Treasury market except for 30-year bonds pays less than 2 percent, you’re effectively locking in a loss once the Fed gets its way,” cautioned Kramer, who also leads the Value Authority, GameChangers, Turbo Trader, High Octane Trader and Inner Circle advisory services. “Savings accounts can’t keep up. Neither can most certificates of deposit. They’re still reliable, but their very lack of variability becomes a drag.”

Paul Dykewicz interviews money manager Hilary Kramer.

Even though Treasury debt is backed by the U.S. government and the risk of default is unlikely, investors won’t make much money by purchasing those financial instruments, Kramer said. The least volatile stocks still carry a little more risk that the promise of reliable income will be broken, compared to U.S. government bonds, she added.

“That’s why these investments are priced the way they are,” Kramer said. “Your money works harder when the higher yields you capture actually pay out. Right now, that’s real estate, which pays 3.1 percent across the sector. Barring a real estate crash, these companies will keep paying dividends because they’ll keep collecting rent, and their shareholders will stay ahead of the Fed’s inflation target.”

Investors who are earning that 3.1 percent and paying their bills may be interested in pursuing further yield, even if it requires taking a little more risk, Kramer said. Avoid any real estate companies that depend on a normal yield curve because it recently became inverted with rates for short-term debt topping rates for long-term debt, Kramer added.

“A lot of mortgage REITs don’t own property or charge rent,” Kramer said. “They simply borrow cheap and buy higher-yield long-term loans, which can blow up fast when short-term borrowing costs more than what long-term loans pay. Many of these companies are available at effective yields above 10 percent because most investors believe those dividends won’t continue.”

REITs to Invest in Now Own Rent-Producing Assets

When a company owns the property and not just a pile of loans, the yield curve becomes advantageous for investors, Kramer said. An example is the best senior living REITs, which suffered after a string of bankruptcies triggered by too much competition, she added.

“Omega Healthcare (NYSE:OHI) pays above 6 percent and will probably be able to sustain that yield for the foreseeable future,” Kramer said. “If the landscape shifts, you’ll have time to adjust and, in the meantime, you’ll cash 6 percent a year.”

Ventas (NYSE:VTR), HCP (NYSE:HCP) and Welltower (NYSE:WELL) all pay 4 percent, Kramer said. Investors can start collecting those income payments now and then come back in a year to review the outlook for those positions, she added.

REITs to Invest in Now Include Restructured Office Properties

Office Properties (NASDAQ:OPI) just went through a huge restructuring and now pays 7.5 percent, Kramer said. That dividend is probably secure for at least the coming year, so that’s a whole lot better than what one-year Treasury debt pays now.

Chart courtesy of StockCharts.com

Investors can treat OPI as a one-year bond and allocate their money accordingly, Kramer said. In retail, the malls may be off limits for now but Vornado (NYSE:VNO) owns the most exclusive storefronts in New York City, she added.

“Those rents aren’t going to crater in the next year, so lock in 4.5 percent now,” Kramer suggested.

Chart courtesy of StockCharts.com

Key threats to investors right now include negative interest rates in Europe, soaring government debt, trade wars, economic weakening and global conflicts rather than a specific economic disaster such as the Great Recession of December 2007 to June 2009. Since none of those risks seem likely to end soon, REITs offer a way to collect income and pursue capital appreciation.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.