Stellar performers for the first half of 2013, many real estate investment trusts (REITs) ended the year down as concerns that the Federal Reserve’s QE3 policies would lead to higher interest rates prompted investors to seek out alternatives. But REITs, with their lofty dividend yield, bounced back stronger in January and look like an attractive play in 2014.
Investors have shied away from these investments since last May, when former Fed Chair Ben Bernanke signaled the Fed would “taper” its aggressive bond-buying — a move that would trigger higher interest rates. Interest rates are an important consideration for REITs, because they adversely impact borrowing costs for developers.
But it’s hard to keep a lofty dividend yield down, and REITs bounced back in January — and REITs could see even better performance given new Federal Reserve Chair Janet Yellen’s assertion on Tuesday that low interest rates make sense in the current, still-weak, economy.
Yellen’s remarks indicate that while the Fed is still pursuing a policy of “quantitative easing”, it is unwilling to risk sending the economy into an interest rate shock. That’s good news for REITs, which have long been considered a great way to gain exposure to real estate without all the headaches of being a landlord.
Here are three REIT plays to buy for the dividend yield: