by Lawrence Meyers | December 9, 2013 1:11 pm
If you are a long-term investor, perhaps you have found a few companies that you know really well.
You know: You follow the company, the sector it operates in, how the economy affects it and how its quarterly reports move the stock, and you’re generally are not surprised by any movements in the stock. You might even become so comfortable that you recognize various trading patterns, and are able to take advantage of this by engaging in swing trading alongside any long position you hold.
Well, because I love reliable sources of income, I’ve gotten to know a few real estate investment trusts, or REITs, pretty well.
I’ve tracked the following three REITs for years and years, and know them pretty well. While I’m so comfortable with them that I would either go long or sell these REITs from time to time and just rely on swing trading, I believe all three make excellent core positions in any long-term diversified portfolio, including retirement accounts:
VNO Dividend Yield: 3.2%
Vornado Realty Trust (VNO) is one of the premier commercial REITs in the nation. It holds a number of properties in the very attractive area of New York City, and this includes prime real estate like Madison Avenue between 59th and 60th — as in, the entire western block. That property alone has more than a half million square feet of office space and 71,000 square feet of retail space.
And that’s just one property. VNO has so many more in NYC, as well as Chicago and Washington, D.C. The list goes on and on.
In fact, this REIT has so many properties that it can sell any number of them whenever it wants, raise capital and redeploy it into some other property.
Vornado also makes strategic investments in retailers. Yeah, its JCPenney (JCP) stake blew up, but did you know the company owns 32.6% of Toys ‘R’ Us?
VNO stock yields 3.2%, which isn’t screamingly high, but solid.
PSA Dividend Yield: 3.6%
Public Storage (PSA) takes advantage of everything that can go wrong in life … but before you think this sounds predatory, take a step back.
When do people need to put things in storage? When they downsize, which is what is happening in an economy where people are leaving the workforce in record numbers.
Know anyone who has gotten divorced? What do they do? Put stuff in storage.
Has a loved one died? More storage needed.
Moving or relocating? Once again, storage needed!
None of these things are going to change, because they’re just a part of daily life, making PSA stock a perfect long-term holding for retirement. All Public Storage needs to do is draw down capital, build its facilities, then rent those spaces out. Some are short term, and others are long term.
What this most reminds me of is another very profitable business — timeshares. Borrow money, build a hotel, sell each unit 52 times. It’s the same concept with storage.
PSA stock just increased its quarterly dividend by 12% to $1.40 in November, bringing its yield up to 3.6%.
AHT Dividend Yield: 5.9%
Ashford Hospitality Trust (AHT) is an exquisitely managed hotel REIT that I have followed since the company went public almost 10 years ago, and there are many things to like about AHT stock.
First of all, management has been in the hotel business for well more than 20 years, and it manages its capital with extraordinary efficiency. AHT also is able to swap out credit lines, extend maturities and engage in various interest rate hedging strategies with great aplomb.
Also, while virtually every other hotel REIT cut both common and preferred dividends during the financial crisis, AHT not only kept its preferred dividends intact, but repurchased enormous amounts of its common and preferred shares at fire-sale prices while other REITs struggled to stay afloat.
Other things to like: Ashford’s portfolio is both geographically diversified, and diversified across brand; insider ownership is at 19%, far higher than any other competitor. It pays a 5.9% dividend, which is sustainable for the long-term.
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As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities, but may initiate a swing position at any time. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.
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