The Federal Reserve has continued its efforts to provide an unprecedented period of historically low yields, even in the face of substantially expanding government debt. These efforts have forced many income investors out of their comfort zone in search of yield. Traditional sources of income, such as certificates of deposit, yield next to nothing. In addition, traditional income producing sectors within the stock market like utilities look overpriced at these levels.
For my own income portfolio, I have relied on a variety non-traditional yield plays within the energy MLP space, hotel REITs, and some small-cap, high-yield stocks to provide the distribution and dividend payouts I desire to maintain a solid income stream. I also have a limited number of commercial real estate REITs, as most of them have already had nice run-ups and valuations seem a little stretched right now. One commercial REIT that still appears cheap is Lexington Realty Trust (LXP).
Lexington Realty Trust operates as a self-managed and self-administered real estate investment trust. The company owns and manages a portfolio of office, industrial, and retail properties. The company operates just under 200 properties throughout the United States.
Here are six reasons why Lexington Realty Trust is still a good income pick at under $11 a share:
- The stock yields 6.1% and has raised dividend payouts 50% since it emerged from the financial crisis in 2009.
- The company has a unique structure for a REIT. It specializes in leasing one-tenant buildings, usually to corporate and regional headquarters. It diversifies by industry and also geographically. Tenants pay all operating expenses, so cash flow is highly predictable. Its clients include S&P stalwarts Allstate, Baker Hughes, Entergy, and many others.
- Stifel Nicolaus changed its rating from "Hold" to "Buy" earlier in the week.
- Lexington Realty Trust is showing good revenue growth. It is tracking to an 8% sales gain in FY 2012 and analysts have a 13% revenue gain penciled in for FY 2013. The stock has a five-year projected PEG of under 1 (0.93), unusual for a high-yielder.
- The company has a stable and experienced management team. Insiders and beneficial owners also have a substantial stake in the firm and have sold less than 1% of their shares over the last year.
- Near the end of the last quarter, Lexington acquired the Net Lease Strategic Assets Fund by paying its partner in the joint venture a nominal cash sum. This transaction should be accretive to cash flow and earnings going forward.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LXP over the next 72 hours.