Real Estate Investment Trust

 

REAL ESTATE Investment Trust

Paying Dividends for over 40 Years.

This is not a new investment opportunity as it has been around for a long time now. The problem is if you are not into investing and do not read investing books, you probably never heard of this type of investment opportunity. What is a real estate investment trust? Exactly what you might think it is when you read the title. They are companies that invest in real estate holdings, offer shares to investors so that they can own a piece of the pie. This in turn provides the company with the influx of cash to invest into more properties. Now the secret sauce to this deal is that by law these REITS must pay out about 90% of all the income they make back to shareholders. If they make 1 million dollars a year they have to pay out 900K to all the owners. Usually all the dividends are paid out on a monthly time schedule. Now what company you know gives almost all of its profits back to the owners? (None I’ve seen)

I am a big proponent in holding some REITS long-term, as it can provide a substantial amount of income and the ability to diversify nest egg money away from the usual U.S. large cap equities. The REIT market on average provides yields of about 5% and this is not including any capital appreciation on the price of the stock when you decide to sell. For a few examples of REITS in the market today see below:

Real Estate Investment Trusts in the Market:

Symbol Price Yield Mnthly / Qrtly Dividend Time in Business
O 45 4.83% .1828 Mnthly 44 Years
ARCP 13 7.58% .0833 4 Years
GOV 24 7.17% .43 Qrtly 5 Years
NNN 37 4.47% .42 30 Years
OHI 38 5.30% .51 22 Years
 

 

This investment lets you have exposure to real estate without ever actually owning a piece of land. The REITS trade like individual stocks and are very liquid investment vehicles. In addition to buying these REITS in your brokerage account you can also look for REIT mutual / index funds offered by the big investment companies like Fidelity and Vanguard. These are a bit different as they pay out on a quarterly basis, in addition to this they have policies governed by the mutual fund company.

As you notice the REITS that have been around for over 20 years pay out much less than the others on the list with less time doing business. The difference in yield is about 3% between the different REITS; the new comers of course come with greater risk. The grandfather of all the REITS is the one traded in the symbol O, and they are on track to consistently pay and increase dividends by 50 years. Do you really understand the safety and security of such a business? They will do everything not to miss a payment to their shareholders and for Pete’s sake to avoid bankruptcy. (The worse scenario for a stock holder)

If you need to find out what your income will be if you were to invest 5 thousand dollars into each REIT, just divide 5000 by the share price, then multiply the # of shares times the dividend amount in the chart above. This will provide you with the dividend you will get either per quarter or per month.

Begin investing in a REIT today throughTradeKing.com

Like REITS, MLP offer a different investing option.

Comment if you hold any REITS in your portfolio?

Do you recommend another Real estate investment trust not listed above that you can share for the moneywatch101 readers?

Rich Uncle EL

Legal – Research before investing in Real Estate Investment trust and if you have concerns consult with a financial professional.

Comments

Real Estate Investment Trust8 Comments

  1. I've been looking at some REITs to add into my portfolio to get some real estate exposure without becoming a landlord or anything. I've been looking at the tax implications of owning an MLP before doing so, however. I still have some research to do on that front before I'm comfortable with it. Great info here EL.
    My recent post overcoming FOMO

    • Yes you have to pick some up RYAN, they pay out well, and are pretty consistent. I don't worry about taxes too much, that is until I am able to reach 200K – 500K in income, LOL. Then that's when you have to get creative, and begin giving a lot of it away.

  2. I've looked into REITs and if I invest in them, it'll probably be in an IRA to shelter them from taxes. I'm a big fan of index funds and Vanguard so I'd probably go with the Vanguard Reit index fund.

    • Hey good point if you want to have less risk yes go with the Vanguard REIT, it’s a great fund. The thing is after doing some research if your goal is to grow income with greater potential, then you might want to stick to the individual O stock. After doing a quick dividend calculation based on today’s prices with 10K invested you will get $95 bucks per quarter with vanguard Reit admiral shares and you will get $120 per quarter with the O stock. The kicker is you will grow the O stock if reinvested by 3 new shares per quarter and only 1 share per quarter with the Vanguard Fund. I believe if you can find a way to compound more shares sooner rather than later the income from that investment will grow faster.

  3. I have been looking to add REITs to my long term holdings. Specifically, healthcare REITs such as HCP, VTR, OHI. Wondering if you prefer certain types of REITs over others. I wrote an article recently about timber REITs. I know there are residential, commercial, industrial, storage, etc. etc. Just curious as to what type of REIT you like. Thanks!
    My recent post Dividend Portfolio Sector Allocation

    • I prefer the Reits with a good track record and at least 10 years in business. For example O, and OHI are great choices in my opinion, this will give you immediate sector diversification into commercial and healthcare REITS. In my opinion Timber and Storage REITS are a riskier play. The concerns over the enviroment might affect timber business and Storage seems like a current Fad. If a REIT is paying a high yield and has been consistent for at least 5 years, I might make an exception and keep an eye on it. Healthcare first and commercial second as these two have the greatest demand in the market going forward.

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