Real estate, alternative real assets and other diversions

2 Preferred Possibilities That Might Be Worth a Look

The Fund Manager

As you might very well know, real estate investment trusts, also known as REITs, are legally required to pay out no less than 90% of their taxable income. That’s how they’re structured to operate in the U.S., and they’re not allowed to exist as a REIT unless they meet that requirement. This is done in the form of dividends: payouts to their shareholders that make them very attractive assets that can generate a whole lot of growth. 

This fact, and the way that this investment universe seems to keep growing by leaps and bounds, has opened up a sizable market to emerge within the REIT world. By this, I’m referring to REIT preferred stocks, which can be an intriguing additional to just about any portfolio.

While I do fully recognize that preferreds aren’t the most well-understood or the most popular stock market direction to go in, there are a few different reasons why you really might want to consider them after all.

For one thing, preferred stock comes by its name for a reason. Anyone owning those particular certificates of a stock get automatic priority when it comes to shareholder payouts – rain or shine. To be clear, they’re not at the absolute top of a company’s list of responsibilities in this regard. Bondholders do get to go before them in this chain of importance… 

But they’re still likely to get paid in the end in the case of a bankruptcy. Their common counterparts, however, are unlikely to receive anything under that unfortunate set of circumstances. It’s just the way it goes.

Plus, most REIT preferred shares are collective investments. And by “most,” I mean 98%. This means that, if a REIT happens to renege on a dividend in one quarter, it will have to pay it out after all just as soon as its back to paying as planned.

People will happily pay for that kind of security. As well they should up to a certain point and under the right circumstances, of course.

A Particularly Preferred Way of Doing Things

Of course, as with every other investment out there today (or ever), there are pros and cons to buying up preferreds just like there are “good times” and “bad times” to own them. 

For the record, this does not mean by any stretch of the imagination that I support trying to time the markets. Because I most definitely don’t. What I support is having a healthy balance of assets per portfolio so that one segment’s good times outweigh another’s bad. That’s the best way to encourage safe, long-term growth.

With that said, today’s low-yield environment does offer an additional reason or two for investors to buy up preferreds. The way things are right now, they could produce dividend yields of 6% or higher. Which – admit it – sounds at least a little tempting. Doesn’t it?

If you admit that, yes, it does and your personal portfolio isn’t already overweighted in such positions, you might want to consider the InfraCap REIT Preferred ETF(PFFR). It’s an exchange-traded fund that offers an easy way to scoop up a number of REIT preferreds all in one simple swoop. 

Its goal is to match up with the Indxx REIT Preferred Stock Index, which, in turn, seeks to track preferreds with yield-to-calls of 3% or higher. Here are some other things you should know about PFFR… As of March 21, it:






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About Brad Thomas

Brad Thomas

Brad Thomas has been a nationally-acclaimed Forbes author, speaker, thought leader and advisor in the commercial real estate industry for over three decades. He is the author of The Trump Factor: Unlocking the Secrets Behind the Trump Empire and the co-author of The Intelligent REIT Investor. Thomas is the founder and editor of the Forbes Real Estate Investor (monthly subscription-based newsletter) and senior analyst at Rhino Real Estate Advisors. Brad tweets at @rbradthomas

Articles by Brad Thomas

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