I continue to put a higher allocation of my 'dry powder' into high-yield sectors & stocks in the market during any sell-offs in equities. The reasoning for this is threefold:
- These stocks & sectors underperformed the market significantly in the back half of 2013 as interest rates rose.
- Interest rates have surprised the pundits by falling in the New Year. As a result, high-yield plays have outperformed the market in 2014. I believe this continues as the economy has another 'false start' and fails to follow on the over 3% GDP growth delivered in the back half of 2013.
- With the Federal Reserve starting to 'taper' or withdrawal support from the market and 2013's ~30% rally in equities, the market is overdue for some consolidation. High-yield/low beta stocks should deliver outperformance in this sort of market.
I am continuing to look through earnings reports to find new opportunities from companies whose stocks have high yields and that are delivering solid results. Here are two that are currently on my radar in the real estate investment trust (REIT) space.
Inland Real Estate Corporation (IRC) owns and manages neighborhood and community retail centers located primarily in the Midwest. Inland Real Estate Corporation currently owns interests in and manages 161 properties, with approximately 15 million square feet of real estate totaling nearly $2 billion in asset acquisition value.
The REIT delivered solid results before the bell this morning. It posted FFO (Funds from Operations) of 26 cents a share, 4 cents a share above consensus. This marked the third quarter in a row the company easily beat bottom line expectations. More impressively revenues came in ~8% above estimates.
Insiders seem to have solid confidence in the company's value & prospects as they have been consistent and frequent buyers of the stock over the past year and a half. The shares yield over five percent (5.4%) and the company pays a dividend monthly. Inland is delivering sales growth of 10% to 12% annually and the stock is priced at under 11x forward FFO. This is a significant discount to larger players in the sector such as Realty Income Corporation (O) even as dividend yields are equivalent.
Aviv REIT (AVIV) specializes in the ownership and triple-net leasing of post-acute and long-term care skilled nursing facilities (SNFs). The REIT owns one of the largest portfolios of SNFs in the U.S. Their portfolio consists of 286 properties in 29 states leased to 39 operators.
Like Inland, this company posted better than expected numbers this morning. FFO came in at 41 cents a share, two cents a share above estimates. Revenues also slightly beat the consensus. The company also sees FY14 FFO of $1.89-1.93 a share versus the ~$1.85 a share consensus. AVIV came public in 2013 and pays a 6% dividend yield.
Revenues are increasing in the mid-teens thanks to prudent acquisitions and the company is well positioned to benefit from the continued aging of the population. FFO was breakeven in FY2012, posted $1.69 a share in the black for FY2013. Analysts have a consensus FFO forecast of $1.85 a share in FY2014. Given yield and growth prospects, AVIV is a solid value at ~13.5x forward FFO.
Given my outlook for 0% to 10% gains in the market in 2014, getting an over five percent yield with decent growth prospects in low beta plays seems like a logical strategy.