REITs Quietly Racking Up Gains, With Dividends to Boot

by: Moby Waller

On the small list of new highs for today (screened for optionable stocks with over 500k daily stock volume), there are six REIT stocks, which certainly jumps out.

These are:

  • Camden Property Trust (NYSE:CPT)
  • Avalonbay Communities Inc. (NYSE:AVB)
  • BRE Properties Inc. (NYSE:BRE)
  • American Capital Agency Corp. (NASDAQ:AGNC)
  • Annaly Capital Management, Inc. (NYSE:NLY)
  • Cypress Sharpridge Investments (NYSE:CYS)

Real Estate Investment Trusts or REITs are an incredibly diverse group both in terms of quality, niche and financials, and research needs to be done on any individual company before an investment or trade is made.

I plugged in these six REITs making new highs into a 2011 performance graph along with the most commonly traded real estate ETFs: Vanguard REIT Index (NYSEARCA:VNQ) and iShares Dow Jones US Real Estate (NYSEARCA:IYR), along with the S&P 500 Index ETF (NYSEARCA:SPY) thrown in for comparison's sake. We do trade VNQ and IYR at times in our BigTrends ETF Tradr program, but no open recommendations on those currently.

You can see below that three of the six REIT stocks have moved higher basically in tandem this year and have outperformed both the broad market SPY and their sector ETFs. The other three individual stocks have underperformed, but have moved steadily higher since April and are in positive territory for the year.

Click to enlarge

2011 Performance Chart

REITs are often utilized for yield (many have high payout ratios to shareholders), so in the current environment where bond prices have risen due to economic slowdown concerns and money flowing into "safer" plays, it's somewhat logical that this group has done well. The consistency, steadiness and safety of REIT yields can vary greatly depending on the individual company and structure, so again do your due diligence.

Looking at the yields of these six stocks making new highs and in comparison to the ETFs, you can see below that the three names making the biggest gains in 2011 are also all yielding in the 3% range. This relatively low yield indicates to me that they are considered to have safe payouts, at least in the minds of the traders, investors and funds that are purchasing shares. Those yields are right in line with the sector ETFs, with the bonus that those individual companies have outperformed the baskets thus far this year. And note that the group in general has outperformed the broad market SPY and has a higher yield payout.

The other three names which have shown strength since April but have middling 2011 gains have much higher listed forward dividend yields (data from Yahoo Finance). These are certainly riskier names, but with increased risk can come big reward at times. I always advise caution on names that are yielding this high ... it basically means the market is pricing the uncertainty of future dividend payouts into the stock. I personally have been burned before buying a 10%-plus yielding stock that reduced its payouts sharply a couple of quarters down the line. But if these companies continue to consistently pay dividends that high, then the recent stock gains will likely continue plus the 10%++ yields certainly look attractive.

REIT Yield Table

The takeaway is to note the gains in REITs this year and the sector's outperformance and yield benefit vs. the broad market. But it also shows the vast differences in the various companies and the perceived quality of their dividend stream. Those looking for yield in various ranges should investigate this sector and the individual companies to find those that may meet their risk/reward preferences.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.