REITs Are Underperforming By 60%… Is It Time To Buy?
I absolutely love Real Estate Investment Trusts (REITs).
REITs borrow money to buy properties and then collect rent, which they use to pay dividends.
For tax purposes, REITs must pay 90% of their income as dividends each year, which means they have really high dividend yields.
Unfortunately, REITs haven’t been showing us the love back.
In the last five years, REITs are up about 34%… which doesn’t sound terrible at first.
But compared to the overall market, which has almost doubled, it’s awful.
What’s going on with REITs?
It’s all about interest rates!
Interest rates have been really high the last few years to fight inflation.
And REITs borrow tons of money to buy all of their properties.
But guess what? Interest rates are about to drop.
The Federal Reserve (the Fed) sets interest rates to maintain a stable and healthy economy.
Jerome Powell, the Chair of the Fed, recently gave a speech about interest rates.
Powell has been very hesitant to lower rates because of inflation fears.
However, the economy seems to be slowing down and Powell is more open to lowering interest rates.
Here’s a transcript of Powell’s speech.
Lower interest rates are fantastic news for REITs and mean we’re on the verge of a major REIT rally.
And these are some of my favorite picks…
Industrial REITs are really popular right now, and Stag Industrial (ticker: STAG) is one of the best.
Stag owns and rents out industrial properties like warehouses, distribution centers, and small manufacturing facilities across the U.S.
Lower interest rates help Stag in two ways.
First, lower rates will jumpstart the economy and increase the demand for Stag’s properties.
Second, lower rates means lower interest expense, which accounts for 20% of Stag’s expenses.
And Stag’s 4% dividend yield is one of the highest among industrial REITs.
Plus, Stag is one of the few REITs paying dividends every month!
Healthcare is a huge industry, and CareTrust REIT (ticker: CTRE) is right in the middle of it.
CareTrust owns and rents nursing care facilities and senior housing in the U.S. and U.K.
And with populations aging in those markets, CareTrust is about to take off.
But don’t forget about its dividend.
CareTrust has a 4% dividend yield, and it comes with some incredible growth.
CareTrust increased its dividend payment 15% in March, which is one of the highest growth rates among REITs.
If nursing homes and warehouses bore you, then EPR Properties (ticker: EPR) is for you.
EPR owns properties in entertainment like amusement parks, resorts, movie theaters, and ski lodges.
And the entertainment industry is very profitable for investors.
EPR has an excellent dividend yield of 6.5% and has increased its payment by 3.5% in March.
The dividend growth isn’t as good as CareTrust, but it’s more than enough to outpace inflation, and EPR has a higher dividend yield.
Is now the time to buy REITs? Are you buying?
Michael Jennings, Editor
Dividend Stocks Research
Category: Dividend Stocks To Buy?
