All of the political nonsense currently emanating from Washington these days has at least pushed the need to "taper" by the Federal Reserve back for at least a few more months. This should be beneficial to the high yield sectors in the market. As I have stated in recent columns, I am allocating some of my significant cash position into Real Estate Investment Trusts (REITs) on any further pullbacks in the market. Below are two more high yielding real estate plays I like over the long term.
Realty Income Corporation (O) is one of the largest publicly traded real estate investment trusts in the country with an enterprise value north of $12B. It owns and operates over 3,500 properties in 49 states and Puerto Rico. It is a good proxy for the overall commercial property REIT market. The shares yield 5.5%. The company pays a monthly dividend payout and incrementally & consistently raises its payout. Over the past five years, payouts have increased more than 40%. I continue to see this kind of incremental payout growth for shareholders as long as the economy does not slide back into recession in the coming years.
The company has been initiated or upgraded by Janney Capital and Robert W. Baird to "Buy" over the past six weeks, respectively. Revenues jumped better than 50% this fiscal year, mainly via acquisitions. Analysts expect revenue growth to slow to the low double digits for FY2014. The shares are offering an attractive entry point after declining some 30% over the past few months as interest rates have risen. The stock also appears to have some technical support at just under the current stock price (See Chart).
Cole Real Estate Investments (COLE) is a large (~$6B market capitalization) real estate investment trust. The company primarily invests in retail, office, and industrial properties. It has over 1,000 properties in 48 states. The company's occupancy rate is an impressive ~99% and its average remaining lease life by tenant is more than 12 years. The firm has been around for over 30 years but it came public within this structure earlier in the year. The shares have been initiated as "Buy" over the last six weeks at both FBR Capital and Ladenburg Thalmann.
The shares yield just a bit less than six percent (5.9%) and I would look for dividend growth to be in line over the long term with revenue growth (4% to 6% annually) combined with accretive acquisitions which historically have been significant. The three analysts that cover the shares have price targets between $14 and $15 a share on COLE, implying some decent capital appreciation upside to the current $12.25 a share stock to go along with its generous dividend yield.