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REITs: An Income Investor’s Dream?

22 February 2013 in Trading Ideas

John Waggoner, the veteran personal finance writer at USA Today, recently surveyed the current situation for income-oriented investors, and it wasn’t a pretty sight.1

In fact, he described it as a desert, one with “lots of cacti, a few cattle skulls in the shimmering heat and vultures with napkins around their necks.”

But Waggoner found a potential oasis, in the form of Real Estate Investment Trusts, or REITs.

Most investors are familiar with REITs; they’ve been around for decades. REITs are entities that invest in real estate, and receive special tax considerations in exchange for distributing at least 90% of taxable income to investors in the form of dividends.

REITs come in many flavors and sizes. Some deal with downtown office buildings, others with shopping centers, and other still with specialized projects like hotels or store-it-yourself facilities.

The main attraction of REITs, as Waggoner writes, is that virtually all of them pay healthy dividends.

In addition, growth in the economy could trigger heightened demand for REIT-supplied shopping centers, office space and the like. Further continuing low interest rates would be a favorable environment to stimulate financing new construction.

Within the world of real estate, actively managed REITs have had a 10.6% average annual return over the last 15 years, more than any other real estate investment strategy.2

So REITs may be worth checking out. As USA Today suggests, they may well be water for parched lips. Motifs that offer exposure to REITs include Office Space, up 19.2% up in the past year, and Renter Nation, up 7.5% in the past year.