We still live in the age of low bond yields, and that means frustration for many investors.
It forces conservative investors further out onto the risk curve, when they’d much rather stay at home and watch nice simple interest payment add up in their bank account while they sleep well.
Fortunately, some dividend investments are a bit safer than others. The so-called “dividend stocks” that constitute large-cap stalwarts are far too pricey these days. Getting paid 3% while dealing with stomach-heaving 20% corrections is not the best way to go.
Thankfully, we have things like the REIT stocks. With real estate investment trusts, one can buy into the cash flows of real estate companies.
A well-managed REIT will be able to profit nicely between what it charges its clients and what it pays in mortgage debt and other expenses, then pass 90% of the profit on to the investors.
Reliable REIT Stocks: Realty Income Corp (O)
One of the most famous REIT stocks at this juncture has to be Realty Income Corp (O), also known as “The Monthly Dividend Company.”
For 47 years, The Big O has been paying investors that monthly check, presently supported by its 4,615 real estate investments, representing $12.6 billion of investment, diversified across a massive 243 commercial tenants.
This is exactly the kind of diversification one loves in a REIT. Not only are the investments spread across 49 states and Puerto Rico, but also across 47 different industries and, as mentioned, thousands of properties. The danger of a REIT is if it is too concentrated in an area that undergoes some kind of secular decline, it could take the REIT down with it.
With a yield of 3.75%, you’ve got safety in numbers here.
Reliable REIT Stocks: Government Properties Income Trust (GOV)
Is there anything better than being able to do business with an entity that has endless capital and that you know will never default? There is not.
It may be one of the few times we can praise the government, because Government Properties Income Trust (GOV) leases real estate to government entities.
GOV plays hand-in-glove with the U.S. General Services Administration, which arranges for almost two-thirds of the leases for GOV. The REIT has invested over $1 billion in properties and has over 90% occupancy since its 2009 inception. Funds from operations, which is what ultimately funds the dividend, was up 7% in the first quarter, and same-property occupancy hit 95.1%.
What’s so great about GOV is that the government likes to stick with familiar vendors and often has longer leases than corporations. GOV also yields a fantastic 8.7%. It’s difficult to beat that kind of common dividend in the current market.
Reliable REIT Stocks: Select Income REIT (SIR)
There’s a similar REIT play to GOV, and in fact, GOV actually owns a stake in it. That’s Select Income REIT (SIR), which own 119 properties representing 360 buildings and almost 45 million rentable square feet in 35 states. Yes, there’s that diversification I mentioned again making life wonderful for stockholders.
SIR even went tropical, gobbling up 18 million square feet of land in Hawaii. That is a great move because, as we know, Hawaii is an island and real estate is at a premium. There’s development to come there, and that probably makes SIR undervalued.
FFO rose by 5.7% year over year, and rental rates popped 14%, which obviously is good news. That meant total revenue — the top line — increased by over 20% to $97 million. Occupancy here is even greater, all the way up to 97.8%.
Times are obviously very good at SIR, and that’s why it has a whopping 8.3% dividend yield.
As of this writing, Lawrence Meyers has no position in any security mentioned.