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Best High-Yield REIT CEF - For Growth And Income - 7.6% Yield


  • After trading flat for almost three years, REITs are cheap with relatively low FFO multiples, discounts to NAV, and high dividend yields.
  • Irrational fears of interest rate hikes have affected share prices while fundamentals remain very solid. Expect FFO to keep on growing, and dividends to continue to increase.
  • With the U.S. economy continuing to fire on all cylinders, there are many reasons to be bullish on the sector.
  • Most importantly valuations are very appealing relative to other asset classes.
  • If you are looking for high yield without the associated work from managing a diversified portfolio, you may want to consider investing in this best-in-class high-yield REIT closed-end fund.
  • Members of my private investing community, High Dividend Opportunities, can follow this idea, as well as my other top picks with access to my model portfolio. Start your free trial today >>

This report has been produced together with High Dividend Opportunities author Jussi Askola.

Property REITs are one of the safest asset classes to be invested in simply because they invest in real estate. Historically, this is a lower volatility sector which has outperformed almost all asset classes over the long term. Today, Property REITs are still very cheap, offering a great buying opportunity to achieve high yields in addition to long-term capital gains.

REITs: Big Dividends Sold on the Cheap

The broad equity markets are today trading at all-time highs, and one of the main consequences is that dividend yields are at all-time lows:

Source: multpl

Who is happy with a 1.78% dividend yield? Certainly not income seekers. This is why at High Dividend Opportunities, we put a greater emphasis on investing in sectors which we believe to have a significantly higher dividend yields relative to their risk profile, growth potential, and valuations. Today, as we enter the second half of 2018, we remain very bullish on the REIT sector which appears to be one of the sectors that has much more to offer than the broader equity markets over the next few years.

  1. REITs own a diversified portfolio of real estate properties - generating steady and growing income from long rental contracts. The risk profile is thus lower than average, and shares have historically been less volatile.
  2. The average dividend yield of REITs (VNQ) is more than 200% higher than the S&P 500 (SPY) at 4.3%. That said, we have been able to identify many interesting opportunities with yields well above 6% in the recent months.
  3. While several equities (notably technology stocks) sell at historically elevated valuation multiples, REITs are relatively inexpensive with moderate multiples and even discounts to NAV. This is largely due to interest rate fears which are mostly unwarranted based

This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group Learn More.

Analyst’s Disclosure: I am/we are long RQI, IRM, VTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (169)

Lake OZ boater profile picture
FYI...REIT sector update (as of 2-15-19).

REITs, as represented by Vanguard's Real Estate Index ETF (VNQ), have had a remarkable, "V-shaped" recovery since the December 2018 'low'.

The RSI-14 (relative strength indicator) is a short-term technical indicator...

-RSI numbers 30 and below are associated with "over-sold"

-RSI numbers at 70 above indicates "over-bought".

VNQ's current RSI (14): 72.42



10-yr treasury note yield: 2.66%

VNQ's current adjusted effective yield is 2.22% as of 01/31/2019.


According to NAREIT's "rule-of-thumb":

2.66% minus 2.22% = 0.44% .

0.44% < 1.0%. Over-priced.


IMHO: Anyone considering an investment into this sector should consider these two metrics on their vehicle of choice before committing their hard-earned dollars. Index investors should be patient and wait for a pull-back.
Absolutely, and with many other CEFs that have been crushed!
ChequeMate profile picture
Well .. if you loved RQI in Sept at $12.50 and a 7.6% distribution yield .. then you gotta love it today at $10.22 and a 9.4% yield.

Sounds good to me.
SleepyInSeattle profile picture
RQI has not been doing well for me, but I am patient. I do not wish to sell at a loss. Perhaps I can add and average down. Any suggestions?
Soupy profile picture
I would suggest not asking for advice here.
Hipsterkitty profile picture
Your patience will pay off. Adding and averaging down have to do with your portfolio overall. How much do you own in the way of REITs? What percentage of your portfolio is RQI?
Recycled Beancounter profile picture
Well done Rida, another thoughtful and cogently penned article. I think your key points about diversification without the aggro of having to do extensive self research and getting a half decent yield are spot on.

keep on going!! And thx again.
Better than AMID?
Does it scare anyone that the expense is 1.8% Seems high.
Rob Baron profile picture
CEFs using leverage are legally required to report interest expense as part of their total expense ratio. That is one of the things which makes CEFs tricky to evaluate. It's hard to tell if that expense ratio is high without examining it's structure.
I am trying to understand how to interpret dividend coverage for RQI. Cefdata.com reports 31.75% earnings coverage, for 6/30/18; along with 2017 income of 32.9%; 67.1% capital gains, 0% ROC.
This leaves me with the impression that if the capital gains were to be completely harvested, the future distribution might only be approximately 31.75% covered.
Does any website track the historic earnings coverage, and correlate it to income/cap.gains/ROC so an investor can make a quess about future dividend sustainability?
I realize CEF returns going forward are mainly dependent on the macro factors/economy. But I am having a hard time correlating the mid-30's earning coverage numbers reported for MANY CEFs at cefdata.com, and having a good feeling about dividend sustainability.
TheGermanGuy profile picture
Then use CEFs with "real" income only policy, like FPF.
And for god`s sake stop using Cefdata.com and those other faulty bullshit sites, look at the fund site itself...

RQI Semi-Annual Report: completely covered by NII
RQI sits on Net unrealized appreciation of 470m$ (p.28).
I own AWP, but recently became concerned when seeing that both CEFConnect and Morningstar have reported a very high percentage of RoC distribution for both 2017 and 2018 (coupled with a declining NAV and narrowing discount in 2018). I have also received 19a notices in 2018 reporting significant RoC. TheGermanGuy, in a comment above, cites the semiannual report as stating distributions were 100% NII in 2017 and 2018, so I checked the report and sure enough he's correct. But this is some very inconsistent information, and I was hoping you could provide some guidance on this RoC confusion. It makes a big difference for my take on this fund. Thanks much!
TheGermanGuy profile picture
Never trust Section 19 notices, they are just estimates and always balanced with the other NII in the fiscal year.
Most of the investments pay mostly quarterly and foreign stocks mostly once a year, so at least look in the section 19 history or search for a trend in the annual/semi annual reports.
Sadly, quite a few funds only allow to see the most current 19a notice, like IGR and others.
Lake OZ boater profile picture
@schr4158 asked: "Thoughts on RNP vs RQI?"

Alas, this analysis is complicated. It appears both portfolios are not 'pure' REIT investments.

The 10 year treasury note is currently around 2.9%

Applying the REIT industry's own rule-of-thumb, i.e.

Income yield minus the 10 year treasury note greater than or equal to 1.1% = "margin of safety*" for purchase (link).

*This 1.1% or greater "yield spread" condition historically has been associated with higher total returns in the years that follow.

Closed end funds complicate the analysis versus a plain vanilla REIT. Why look at REIT CEF's "income yield"? Because there can be a lot of miscellaneous dollars in "distribution yield" making it misleading.

Following the nareit.com "rule of thumb" formula (link) , we should be looking for a current "income yield" of at least 4.0% (i.e. 2.9% + 1.1% = 4.0%).


I ran the CEFA.com screener for REIT funds for yields at 4.0% or higher. Here's the short list, and by the nareit.com approach, RQI didn't make it , but RNP did...

Fund name (symbol) /Income yield / Expense Ratio

-Principal Real Est Inc (PGZ) / 5.18% / 3.03%

-Neuberger RE Sec Inc (NRO) / 4.76% / 2.86%

-Cohen & Steers REIT & Pref (RNP) / 4.64% /1.67%

Hope this provides some additional perspective. Good luck with your decision.
That was helpful, thanks for providing this analysis
I'm not buying shares of a REIT that only pays 1% higher than the UST10Y.
Lake OZ boater profile picture
Jesse wrote: "I'm not buying shares of a REIT that only pays 1% higher than the UST10Y."

Well, the data analysis in the nareit.com article does seem to imply that the higher the yield spread, the greater average 4 year annual return. Here's the historical yield spread experiences from the article:

Yield spread to 10 Yr treasury / Ave. return next 4 years

-1.0% to 1.5% / 12.1% per year (with a median of 11.6% per year)

-1.5% to 2.0% / 15.0% per year (with a median of 14.2% per year).

The author's disclaimer needs to be noted as well:

"...past returns are no guarantee of future performance; even the past relationship between the Equity REIT dividend yield spread to 10-year Treasuries is no guarantee that the relationship will continue to hold in the future. "
Thoughts on RNP vs RQI?

From what I can tell the main difference is that RNP will invest in bonds/debt while RQI will not. I would guess this gives the potential for more stable income to the fund but also less growth potential. RQI seems to distribute less ROC which is also a positive.
during the last recession RQI went from 27 down to 2 dollars.....will it be different in the next recession ???
Well the answer to your at what price ? Is not the discount to NAV since that discount may never disappear, but the true answer is an Expense ratio of almost 2%!!, No thanks! Why is that not mentioned anywhere in this Article? Plus a big chunk of that yield is return on capital, if they can not maintain that income then this fund is basically in a slow liquidation mode.
TheGermanGuy profile picture
That`s fake news news and you know it!
1. the current discount is higher than 52 Wk Avg (-7.61% to -6.52%)
2. No RoC
What’s fake news ? Just cause the discount is higher doesn’t mean it will go back, 2: take a look at the distributions before you open your mouth 3: the expense ratio including leveraging costs is 1.88

There is much more work and expertise needed to ACTIVELY manage a portfolio as opposed to matching an index. That's why the expense ratio is higher. Seems like the question is would you rather net 7-8% yield or a 2-3% yield?

Thanks, Rida - good article. I’d rather be in property REITs than tech at this point.
Bill_G profile picture
I agree Cohen & Steers is a class act in real estate. In my retirement accounts I've got a large position in their mutual fund, CSDIX. Comparing that to RQI I see a lot of overlap in the holdings though some difference in weighting. Performance-wise, the two have similar growth charts (w/ distributions reinvested) at 1, 3, and 5 year intervals, though CSDIX comes out ahead over 10 years because it took less of a hit in the 2008 crash. I presume that's because the mutual fund does not use leverage like the CEF does. Rida, I'm curious for your thoughts on investing in real estate via mutual fund vs. CEF.
Rida Morwa profile picture
Hi Bill, I like listed products that are listed and easy to buy and sell. Otherwise it depends as to which mutual fund you chose.

All the best, Rida
Lake OZ boater profile picture

Perhaps this will lend some perspective...

As an investor approaches retirement, and then makes the official transition when the paychecks stop, a typical portfolio with transition from growth, or growth + income, to mostly income-oriented.

-RQI's yield (8.25%) makes it an attractive candidate for an income-oriented investor.

-The S & P 500's yield, on the other hand, is 1.78%.

RQI does offer some opportunity for long-term growth of capital just like SPY, but offers a higher income stream at the present time .
rllosey profile picture
I'm int'd in your take on RIF, which has a 7% distribution and is trading at a 19% discount from NAV.
Rida Morwa profile picture
One of the main reasons why RIF has under-performed both RQI and VNQ over the past 5 year and the past 10 years is that it only allocates 70% of its holdings to REIT equities. The rest is allocated to bonds and preferred stocks.
Rida Morwa profile picture
Also with RQI you are buying the best management and the best performance among all REIT CEFs. RIF has had a horrible performance. The discount is well deserved in my opinion.
09 Sep. 2018
What am I missing? The total return of S&P-500 nicely exceeds this CEF for YTD, 1,3,5, and 10 years.
Excellent point, EE1215, and a higher percentage of the S&P 500's total return is taxed advantage capital gains and qualified dividends than with the CEFs. I think the reason people buy CEFs is for the immediate income (I am 70, and that's my primary reason); when you reach a certain point in life, yield/income is more important than long-term total return (unless your primary concern is for your heirs; which I am also concerned about, and that is why a significant portion of my portfolio is in the S&P 500). The downside of the S&P 500 total return comparison, though, is that one must sell the holdings in order to obtain that total return for spending. Good luck with your investing.
Hi Rita, I wanted to comment on this statement of yours which is also a common belief by many people.
"The last great recession that we have seen in 2007-2009 was very severe because it was related to a real estate asset bubble created by irresponsible lending practices by banks and financial institutions. At that time, banks did not manage risks properly nor did they have adequate equity to weather off a severe financial crisis."

I read a book titled The Great American Bank Robbery by Paul Sperry. That book shows that the bankers resisted all they could to not be irresponsible. They started off not wanting to make those loans. The bottom line the government forced them to make the loans. It was politicians that started the whole crisis.

That is my take on reading the book which seems to be well documented. Others can form their own opinion.
Thanks for your comment, dougw2007, and I agree with it.
I have to agree with the book. There were a number of factors which brought on the Great Recession, ALL of which came from the government.
MathRulz profile picture
FYI—Coincidentally the current issue (9-10) of Baron’s has an article listing the 7 best books on the financial crisis. This book is not one of them.

The list
Misunderstanding Financial Crises, Gordon
The Bankers’ New Clothes, Admati & Hellwig
House of Debt, Mian & Sufi
Chain of Title, Dayen
The Great Rebalancing, Pettis
Crashed, Tooze
The Shifts and the Shocks, Wolf
I just looked and the reported fee is 1.88% - insane in today's world. In reporting/recommending any CEF, please point this out and put in some context.
Rida Morwa profile picture
The baseline fees are 1.25% which is at the low end of what CEFs usually charge. The rest is borrowing expenses for the leverage. Do not forget, this is an actively managed CEF and you are getting some of the best managers for this fee.
1.25% in fees is a killer for me.
If a long term real rate of return is 5%, they are getting 1/4th of your return.
DividendMustache profile picture
Agreed! That juicy 7.83% yield falls down to 5.96%, which is still swell but that's an expensive way to generate income.
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