Real estate investment trusts (REITs) allow individual investors to purchase shares in commercial real estate portfolios that generate income from the retail, health care, industrial and residential property sectors. Equity REITs trade on the stock exchange, which provides ample liquidity to buy and sell for income, capital growth or a mix of both.
REITs’ exposure to the property market means they typically have a low correlation with other stocks and bonds, which can help diversify a portfolio. When considering an investment in this asset class, investors should be mindful that REITs pay the majority of income back to investors through dividends, so only a low amount of taxable income is reinvested. REITs may also incur high management and transaction fees.
Although a higher interest rate environment like we are in now can reduce corporate profit margins, it also indicates a growing economy that allows tenants to afford increased rents. “Over the past 25 years, the total return of REITs in rolling four-quarter periods was positive 87% of the time when interest rates were also rising,” according to the National Association of Real Estate Investment Trusts (Nareit), as reported by Reuters.
Investors who want to add REITs to their portfolio should consider these three companies. Let’s look at suitable entry points.
Realty Income, listed in 1994, aims to provide shareholders with dependable monthly income. The company generates cash flow from nearly 6,000 properties leased under long-term agreements to commercial tenants. As of Dec. 10, 2018, Realty Income stock has a market capitalization of $19.5 billion and known as the monthly dividend company, it pays investors a 4.13% forward dividend yield. It is up 6.2% over the past month while returning 19.48% year to date (YTD).
Like most REITs, Realty Income’s share price started to trend higher from mid-February. After a minor period…