Maintaining A Tactical Exposure To REITs And Other Dividend Paying Stocks

Jan. 15, 2014 7:00 AM ETBMR-OLD, BRE, COLE, ESS, IMKTA, KR, NNN, O, SRC, T, VTR, WMT29 Comments

There are many reasons that investors should consider owning REIT shares today. As Thomas Bohjalian, Executive VP and Portfolio Manager at Cohen & Steers, wrote in a recent white paper:

The recent pull back in shares of real estate investment trusts has created an attractive entry point, in our view, as many high-quality companies are now trading for less than the value of their underlying properties. We expect REITs' performance profile to improve in 2014, as the benefits of a strengthening economy should outweigh headwinds from higher Treasury yields.

Triggered by interest rate sensitivity, REITs have been the beneficiary of a downright pounding that started in late May 2013. However, since that time REIT valuations have become dramatically more attractive from a year ago. Bohjalian adds:

This divergence led to meaningful improvement in valuations, with many property sectors falling to sizeable discounts relative to the value of their real estate holdings.

Although the market provided the inertia that clobbered REIT shares, the true laws of gravity seem to always apply, whether the driving forces are real or make-believe. In the case of REITs, economic growth generally has a greater effect than rising treasury yields. As Bohjalian explains:

It may be counterintuitive given the market's recent reaction, but REITs have historically done well in periods of rising Treasury yields. This is because rising yields are often associated with an improving economy, which benefits REITs in the form of higher occupancy and rents and stronger investment demand for real estate.

Since the beginning of the modern REIT era in the early 1990's, REITs had positive returns in six out of the eight periods in which treasury yields experienced a sustained upward trend.

Bohjalian believes that "REITs are now priced into current valuations, and any further interest-rate headwinds are likely to be countered by improving

This article was written by

Brad Thomas profile picture
Author of iREIT on Alpha
The #1 Service For Safe and Reliable REIT Income

Brad Thomas is the CEO of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 10,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) iREIT on Alpha (Seeking Alpha), and (2) The Dividend Kings (Seeking Alpha), and (3) Wide Moat Research. He is also the editor of The Forbes Real Estate Investor

Thomas has also been featured in Barron's, Forbes Magazine, Kiplinger’s, US News & World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. 

He is the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, and 2022 (based on page views) and has over 106,000 followers (on Seeking Alpha). Thomas is also the author of The Intelligent REIT Investor Guide (Wiley) and is writing a new book, REITs For Dummies. 

Thomas received a Bachelor of Science degree in Business/Economics from Presbyterian College and he is married with 5 wonderful kids. He has over 30 years of real estate investing experience and is one of the most prolific writers on Seeking Alpha. To learn more about Brad visit HERE.

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