Real estate, alternative real assets and other diversions

Retire Rich With These 5 Highly Predictable REITs Picking attractive dividend-paying stocks on sale

The Fund Manager

Retirement satisfaction is positively correlated with income, net worth, health, and stable income streams.

Reports state that investors, who record the lowest levels of worry, don’t have the highest income prior to retirement. However, their net worth is the highest multiple of their pre-retirement income.

The findings suggest investors whose expectations are modest based upon their income level relative to their asset base are the most satisfied. Pre-retirement worry and post-retirement satisfaction are improved if annuitized income streams exist. The levels and types of these incomes and assets are important.

I’m not going to recommend that retirees should load up on REITs. However, REIT income should be part of the retirement process. Investors should look closer at the asset class to ensure the dividend income quality is reliable and repeatable.

But, just because you invest in a REIT, it’s not guaranteed the dividend income will be sustainable. Most retirees count on the income to fund expenses or enjoy their quality of living, so a dividend cut could be devastating.

Through diversification, investors can reduce risk without sacrificing returns, allowing investors to model portfolios with tactical allocations. Investors should maintain tactical diversification across multiple property sectors because each property has its own macro-economic characteristics.

Listed are five, inexpensive REITs that provide a higher risk option. Following the principles of value investing, if stocks are cheap, you buy them. But, I’m not recommending the “cheap” REITs; these are what I call “the crème de la crème.” If you want to get rich, you have to take the emotion out of the decision-making process and buy attractive dividend-paying stocks on sale.

5 highly predictable REITs

In a recent article on Seeking Alpha about Digital Realty (NYSE:DLR), I explained, “This cloud-based REIT is raining dividends, and I consider the interest rate fears to be nothing more than an opportunity.” Digital recently announced plans to increase its quarterly dividend on common stock by 8.6% – its 13th consecutive increase since the IPO in 2004.

I added, “For a value investor, today is the perfect storm (pun intended) to pick up new shares. The selloff in the REIT sector has created a wider margin of safety, and that’s precisely why I have initiated new purchases for my children’s college fund.”

Digital is no screaming bargain, but the stock is attractive. Shares are trading at 16.8x P/FFO (18x in 2017) with a dividend yield of 3.9%. The potential growth is strong, as consensus estimates predict growth of 7% in 2018 and 8% in 2019. My recommendation: BUY.

The stock in Realty Income (NYSE:O), one of the most predictable REITs on the planet, is getting a decent bid. The latest earnings results debunked most all of the short sellers. I explained in another recent article on Seeking Alpha, “Since 2013, Realty Income has achieved 102% recapture on re-leasing. If the company’s bank portfolio was the primary motivation for the short thesis, it is now debunked.”

Realty Income’s nominal first year weighted average cost of capital reflects the current AFFO yield and the cost of 10-year unsecured fixed-rate debt. This low cost of capital allows the company to acquire the highest quality in properties that provide favorable long-term returns and create meaningful near-term earnings growth. Realty Income estimates 2018 acquisitions will be $1 billion to $1.5 billion, translating to predictable profits.

Realty Income is trading at $51.25 per share with a P/AFFO multiple of 16.6x, compared to 19.1x over three years. The dividend yield is 5.1% while the consensus growth for AFFO in 2018 is 4%. My recommendation: BUY.

Federal Realty (NYSE:FRT) owns, operates, and redevelops high-quality retail-based properties in major coastal markets, like Washington, D.C., Boston, Mass., San Francisco, and Los Angeles, Calif.

Founded in 1962, FRT’s mission is to deliver long-term, sustainable growth through investing in densely-populated, affluent communities where retail demand exceeds supply. Its expertise includes creating urban, mixed-use neighborhoods, like Santana Row in San Jose, Calif.

FRT is one of the few REITs with an A-rated balance sheet. Its shares are trading at $117.32 per share with a P/FFO multiple of 19.7x. While a 3.4% dividend yield may seem modest, it has increased its dividend for over 50 years in a row. My recommendation: BUY

Tanger Factory Outlet (NYSE:SKT), who pioneered the outlet industry in 1981, is the only publicly-traded REIT specializing in the development, leasing, marketing, and operations of outlet centers in the U.S. and Canada.

The Fund Manager

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

Our Partners