I believe that the timing is right to add 2 REITs to any portfolio -- especially retirement portfolios.
NLY is the mREIT I favor, as its management has shown time after time an innate ability to produce results in every economic climate. The current climate has been particularly challenging, and yet the dividend yield is still approximately 14%, the share price has held up extremely well, and there is an increasing realization that NLY could deliver similar results as it wades through the maze of government dalliances, such as "Operation Twist," another round of HARP, and a refinance push that has produced very modest results.
The issue is that whatever the government attempts, they have not altered the fact that short term yields are near zero through 2014, and the yield curve, while fluctuating from narrow to steep, has not stopped NLY from profiting. This is where an experienced management team, who has seen just about everything, shows just how well they can play the game.
Mike Farrell has never been one to "open up" about anything and everything about the business model -- he lets actions speak louder than words; however, he and his team have been the best in the sector for a long time. They are the "Big Dog" in mREITs and have taken a more conservative approach than American Agency (NASDAQ:AGNC) which has outperformed NLY and has made enormous strides. Time will tell if they can continue using greater leverage to deliver the same results. In my opinion, NLY is positioned for the longer haul, which is more to my liking.
I have heard from all of the gloom and doom crowd and its drumbeat that NLY has had its best days, and the new "breed" of more aggressive mREITS are taking over -- yada yada yada. Thank you, but no thanks, NLY has given tremendous returns from outstanding results and offers less risk that the newer smaller kids on the block. I maintain that this is the mREIT to buy, hold, add to positions, and cash the dividend checks, even if they are cut.
O recently announced an increase in its dividend, as it shows improvement in its business model. It is the 57th consecutive increase, and has paid 500 monthly dividends in a row without a miss. The current yield is 4.9%, paid monthly, which I like, and its share price has had a nice uptrend over the last 3-6 months.
This is not a mortgage REIT of any kind, so the risks/rewards are quite different, which gives REIT owners diversification within the sector itself. O makes its money buy owning and renting commercial properties. It's retail client list would make a who's who in retailing, and are generally successful chain operations with proven track records.
To me, this is an economic recovery play, a commercial real estate recovery play, and a consumer spending recovery play. Which is probably why the PPS has risen nicely of late. If we see a recovery then O will continue to profit and reward shareholders with even more consecutive dividend increases. Leases with per square foot agreements will increase, and as the old leases are rolled over to higher revenue ones, Realty Income will benefit nicely and so will we.
There have been some management changes which happen to strengthen the company, and with record quarterly earnings announced last week, I believe we are just beginning to see even more upward momentum and even better results ahead.
I already own both NLY and O and have followed NLY for a very long time. I believe that now is as good a time as any for us to add to our positions in both stocks. Since they are REITs, tax advantages that will end do not apply, so we are actually ahead of the game.
They both have inherent risks, and should be carefully allocated; however, I am a buyer here.
Disclosure: I am long NLY, O.
Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.