Real Estate in the Picture

August 30, 2019    Portfolio Idea REIT

For this months portfolio idea, I’m going for real estate. Many people believe your house and home is the best investment you can ever make.

Whether that is true or not has been the source of many discussions. One thing we can all agree on is that just one house is not a diversified portfolio.

If you believe in real estate you may want to look into some options for diversifying that portfolio of yours.

REIT

A REIT or Real Estate Investment Trust specializes in investing in commercial real estate. They are typically traded on a stock exchange. They may buy, sell, lease, mortgage or rent real estate in various forms. Many specialize in one type of real estate (for instance, industrial buildings).

So if you buy stocks of a REIT, you invest in a company that will manage a diversified portfolio of some form of real estate for you.

Some characteristics of a REIT:

  • Dividend: REITs must pay, by law, 90% of its taxable income as dividend to the shareholders.
  • Low Taxes: In return for qualifying as a REIT, they get a low tax rate.
  • Low Volatility: REITs enter into contracts that usually last many years. This makes them less volatile than many other stocks. They also tend to be less correlated to movements of other assets.

Dividend

Since REITs pay out so much of their earnings as dividend, there is usually less capital growth.

This also means that there are two clear factors to look at:

  • Dividend Yield: How much dividend is being paid per share versus the share price.
  • Dividend History: Has the company been able to pay the same or higher dividend over the years?

Marco Schwartz shares some extra ideas of what you may want to look at in a REIT.

This Month’s Portfolio

With that in mind, here are the criteria for this month’s selection:

  • REITs only (US markets).
  • Order by dividend yield.
  • Dividend growth (CAGR) of at least 2%.
  • Payout ratio below 100% (I’m not sure if this is the right choice, but after some backtesting this looks like it is returning more reliable, less volatile companies)
Symbol Name Current price Dividend Yield Payout Ratio Dividend CAGR
NRZ New Residential Investment Corp 14.06 USD 14.22% 76.10% 8.38%
CIM Chimera Investment Corporation 19.02 USD 10.52% 93.68% 4.98%
KREF KKR Real Estate Finance Trust Inc. 19.04 USD 9.02% 90.97% 18.58%
INN Summit Hotel Properties, Inc. 11.02 USD 6.54% 88.34% 8.79%
BPR Brookfield Property REIT Inc. 18.95 USD 6.28% 72.40% 3.43%
MPW Medical Properties Trust, Inc. 18.75 USD 5.62% 91.31% 2.31%
IX ORIX Corporation 73.15 USD 5.15% 23.75% 22.34%
NHI National Health Investors, Inc. 83.14 USD 4.99% 98.59% 2.50%
LTC LTC Properties, Inc. 49.01 USD 4.62% 96.74% 3.51%
GRP-UN Granite Real Estate Investment Trust 47.88 USD 4.46% 44.10% 13.95%

Thanks to Uncle Stock for selecting this diversified real estate portfolio.


My philosophy: If you want to invest and your goal is to try to beat the market, you need a system. You need a system that can decide for you what to buy, when to sell and not to panic when things go down. Everything starts with selecting stock. You should not just select random stock here and there based on whims or things you read. No, create a system that suites your style and follow it. These posts give you example of what such a stock selection could look like.

Unless otherwise noted, I do all my research through the Uncle Stock screener. It's a great tool to have in your belt. (note: this is an affiliate link, if you sign up, I get a commision)

Disclaimer: Don't believe anything I say or write. Always do your own research before making any investment decisions.