Through the course of the year I am lucky enough to be able to travel around and get a "feel" for the economic activity around us. To be clear, the economy is sluggish at best and businesses in various areas of the nation are struggling.
There are areas that are showing signs of life however. Specifically, the larger city real estate market has been gaining strength as well as some of the larger, well-capitalized retail chains around the nation.
While there are many individual stocks that can be purchased, there are several REITs that can also be bought, which could grow significantly as the economy improves. One in particular works in both segments. At the same time, it also pays dividends, which obviously makes it even sweeter.
Also of interest is a REIT that specializes in the healthcare industry which, given the positive outcome (depending on your viewpoint) of the Affordable Care Act decision, many health-related sectors will benefit by secured government payments.
Plenty of stocks will benefit, but there is a REIT which could cover many of those bases as well as deliver income and potential healthy capital appreciation.
Two REITs To Consider Now
Realty Income (O): Price: $42.10/share, Dividend Yield: 4.20%, ESS Rating: Bullish
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This REIT pays dividends on a monthly basis and has been doing extremely well over the last 6 months. It has a market cap of $6 billion and an enterprise value of $8 billion. Its profit margins are roughly 37% and its operating margins are a terrific 62%. While Realty's payout ratio right now is at 180%, that is not unusual for any REIT and this REIT has a history of paying regular dividends for over 400 consecutive months. A 5 year average dividend yield of 6% has dropped because of the spike in its share price.
Here is Realty Income's business summary from Yahoo! Finance:
Realty Income Corporation engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company leases its retail properties primarily to regional and national retail chain store operators. As of December 31, 2006, it owned 1,955 retail properties located in 48 states, covering approximately 16.7 million square feet of leasable space. The company also held a portfolio of 60 properties through its wholly owned subsidiary, Crest Net Lease, Inc. (Crest), as of the above date. Realty Income Corporation has elected to be treated as a real estate investment trust (REIT) under the Internal Revenue Code. As a REIT, it would not be subject to federal income taxes provided it distributes at least 90% of its taxable income to its shareholders. The company was founded in 1969 and is based in Escondido, California.
The real kicker here is that not only does Realty Income lease out the spaces, but it also has been acquiring properties at bargain prices so that its margins are growing as the spaces get rented.
Healthcare Realty Trust (HR): Price $23.96/share, Dividend Yield: 5.20%, ESS Rating: Neutral
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This REIT could benefit nicely with the expansion of the Affordable Care Act. With more folks mandated to have insurance, there will be more space needed for medical facilities of all kinds. HR has been buying up property at reduced prices in the last 4 years and will be able to lease them out at premium rates as the full impact of the new law takes effect.
Here is HR's business summary from Yahoo! Finance:
Healthcare Realty Trust Incorporated is an independent real estate investment trust. The firm invests in real estate markets of the United States. It primarily engages in ownership, acquisition, management, leasing, and development of properties associated with delivery of healthcare services such as medical office and outpatient facilities. The firm also provides mortgage financing on healthcare facilities. Healthcare Realty Trust Incorporated was formed in 1992 and is based Nashville, Tennessee.
In 2007, this stock was selling for $42.00/share. With the real estate market both residential and commercial simply falling apart, the share price of HR took a hit along with all the others in this segment. It reached a low point of about $14.50/share in 2009 and has been steadily recovering and it is at its midpoint right now. I can see this stock over $40.00/share in 12-24 months.
Paying a healthy dividend of over 5% while we wait for the capital appreciation makes this stock one to consider adding to any core portfolio.
I am bullish on our nation and our economy. I feel that although the employment and income rates are not where we want them to be, they are healing. I also believe that there has been a dramatic shift in the type of employment we are seeing as there are more entrepreneurial efforts being made. Maybe from necessity, but nonetheless a very capitalistic form of "new employment".
That means to me that the old standards by which we have measured growth might need to catch up, and in an election year of such importance, I believe that every effort will be made by whatever party ultimately holds power to nurture this new capitalism and not let it collapse back into the abyss that we have been crawling out from.
Owning shares of companies that can gain significantly from our newer, better, healthier economic future will only serve to help investors, with an eye towards the future, not the past, to secure their own financial future.
Realty Income and Healthcare Realty Trust make lots of sense to me right now.
Disclosure: I am long O.