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Something Wicked Has Now Come

May 04, 2020 7:00 AM ETDLR, O, WPC166 Comments


  • Roughly two months ago, we were sitting at all-time highs.
  • And today we've rallied back significantly, with the broad markets sitting less than 10% off of their prior highs.
  • As conservative investors, we do our best to avoid speculation.
  • Yet as the market pushes higher and higher in the face of what appear to be ever-deteriorating fundamentals, our concern continues to mount.
  • Looking for a portfolio of ideas like this one? Members of iREIT on Alpha get exclusive access to our model portfolio. Get started today »

This article was co-produced with Nicholas Ward.

In July 2019, I wrote an article on Seeking Alpha titled, "The Dangers Of High Yields: Something Wicked This Way Comes," which was somewhat of a harbinger for the high-yield investors that can become hypnotized by the glare of fool's gold.

Most recognize that title from the association with Ray Bradbury's book, Something Wicked This Way Comes, is one in which the author "describes a night like no one else... somewhere in him, a shadow turned mournfully over. You had to run with a night like this so the sadness could not hurt."

Before you pounce on me for suggesting that COVID-19 is not a "black swan" because I predicted it, stop right there.

While my article did suggest pain was lurking in the stock market, I never predicted that the REIT sector would lose $250 billion in value in less than 60 days. Instead my pitch was something like this,

"I'm becoming increasingly concerned that many writers and investors are ignoring the potential for a principal erosion. This low-yield environment we're in has resulted in folks carelessly ignoring fundamentals, hoping to achieve instant gratification as they do. Yet instant gratification is rarely worth it in the end."

Needless to say, something wicked is now here and investors should be even more cautious when it comes to chasing high-yield stocks. We are 100% quality-focused and we believe that our strategy will pay off in the long-run.


Investing For The Long Run

What crazy times we live in. Roughly two months ago, we were sitting at all-time highs. Roughly one month ago, the stock market was down at multi-year lows, having fallen more than 30% from all-time highs. And today, we've rallied back significantly, with the broad markets sitting less than 10% off of their prior highs.

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This article was written by

Brad Thomas profile picture

Brad Thomas is the CEO of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 175,000 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, 2022 and 2023 (based on page views) and has over 111,000 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 (Wiley/Amazon).  

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.

Analyst’s Disclosure: I am/we are long O, DLR, WPC. 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.

Nicholas Ward owns shares in O, WPC, and DLR.

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 (166)

Definitely a change in tone with this article from"Great American Real Estate Bargains of the Century" from May 2 and "Realty Income-Tripling Down on this Triple-Net Blue Chip REIT" from Mar. 21. Also above quote "And, during our recent interview with Realty Income CEO, Sumit Roy, the dividend was referred to as "sacrosanct," implying that management would do whatever it could throughout the current uncertain COVID-period to protect it." So Was Royal Dutch Shell's dividend but it was cut. Read the above articles and see my comments. In my opinion, now not the time to buy these REITS. They will be much cheaper. But Mr. Thomas may be under water. See what Warren Buffet said regarding commercial real estate on Saturday.
Brad Thomas profile picture
@lemojae1 O had a good Q1 and I'm updating this morning on iREIT. I'm sure Buffett has some angst as he is $2 billion underwater with SRG....that was a bad bet indeed! Perhaps he should dump SRG like the airlines...
@Brad Thomas

Brad what impact does the Cares act have on REITS ?

Specifically depreciation (QIP) and Income Loss .

Thank you in advance.
Fireball Dividend Germany profile picture
i´m sorry, but for me it is too much advertising for this and that service in the comment stream. i can understand your intention, but do not like it so straight forward and so often.
i sometime can´t help but have to think on richard kinder advertising "his" company.
i have to agree i´m sensitive on advertising anyway. :)
anyway all the best for all of you.
My concern "mounted" in January regarding the confluence of an economy rolling over into a recession (albeit slowly) with the presence of a virus that would accelerate the process 10x. And my concern has grown ever since. Many investors have lost 20 or 30% or more of their principal. Some REITS are down over 50%. The bear market bounce in some REITs and other equities is a blind continuance of the multi-asset bubble that preceded the virus. QQQ positive year to date? I have said it 100 times already and the Robinhood investors are giving everybody else another chance: protect your principal now. Sell all risk assets now. Buy treasuries, dollars (UUP), cash (greenbacks under your mattress), gold (paper and physical) and wait for the 21st century's great depression to unfold over the next 2-3 years. The bubbles are bursting. Cross asset volatility makes no risk asset class safe. Unemployment is already higher than at any time since the GD. Yes, that includes the Carter administration. Without a miracle cure or a miracle vaccine, the virus will not go away. Herd immunity is light years away. Don't worry about April's lost rent check or whether the tenant will pay a little late on May rent. The wave of bankruptcies that will occur over the next 2 years will dwarf the GFC. Risk assets are uninvestable. Soup lines are inevitable.
Donggle profile picture
@Robert Carswell too soon to count out the FED miracle. If the economy truly runs on money velocity, the market will not care where the dollars come from. The USA is too big to fail, so print and the world will buy buy buy, cuz they have no alternative. We got the only game in town.
Too big to fail doesn't mean too big to decline or dilute. Take a look at the price history of companies that were bailed out in 2008. Citibank, BofA, AIG, GM. Make sure you expand the stock chart to include 2007, so you can see the effect of dilution arising from the US Government taking equity interest in the companies and the reverse stock splits that followed.

The equivalent of 1 share in AIG today would have cost you over $1,000 in 2007.

The equivalent of 1 share in Citibank today would have cost you over $500 in 2007.

It wasn't a "Fed Miracle" that saved these companies. It was the government nationalizing them. That's the game plan this time around as well.
The Fed will not allow capitalism to function. The only capitalism they know is crony capitalism. The billionaire speculators will always get a bailout. True investors that care about price paid vs value obtained are going extinct thanks to the Fed.
BTinSF profile picture
Very please to say I bought a Jan 2022 42.50-62.50 call spread when O was near 42. I'm fairly content with the lower end of that range but what do you think about the upper . . . in 18 months.
Brad Thomas profile picture
@BTinSF Mom’s Monthly Mailbox Money Picks seekingalpha.com/...
I am almost dumbfounded that no posters mentioned Chatham Lodging. Once a firm suspends its dividend, I have no interest investing in it. I am glad that I sold it long ago. MPW is my only REIT. I don't need a basket of stocks; the less I have, the easier it is for me to do research on them.
BTinSF profile picture
Until the one you own surprises you mightily to the downside. Eventually it happens to all of us. If it's a couple percent of your portfolio, you can have a stiff drink and move on. If it's most of your portfolio, that's harder.
I like the upside of fewer investments, but to BYInSF's point, protect your hinder with some options trading.
Thanks Brad, you are a help to me in REITS. I got lucky on O in March @ $41.60. It went down the next morning and has been up since. I would love to buy more O and WPC. I think it went up too much but then O went down 2% but back up 2% after hrs. I have learned one thing. If I buy today , it will go down tomorrow. If I sell today , it will go up tomorrow. It happens this way about 80% of my trades. It has convinced me I am a jinks . I will buy and never sell for now on. I think energy is a better deal now anyway. Later, ihookem.
Brad Thomas profile picture
@ihookem We just published an energy report on iREIT: Oil Demand May Have Bottomed: What Midstream Investors Need To Know seekingalpha.com/...

All the best. Brad
Hi Brad like the article.
I've owned WPC for to long should have sold some off when it hit 92 in October but have held it back down to 60's. WPC say they collected 95% over the rent the other month who know about this month. No dividend is safe now owned a bunch that should have been that weren't.
WPC haven't said anything about dividend for July yet. Dividend isn't really growing anymore either. May add a lot more later.
Brad Thomas profile picture
@olde1two Realty Income. 83% rent collection and talking deferral with many of the balance evidently. I was thinking about 80%. Coming out of 2009 O decided to increase the percentage of investment grade tenants from 1% at the time. I think that is about half the portfolio now and evidently 99.9% there. “You only know who is swimming naked when the tide goes out!’ This time, the tide went out and a tsunami came in. 🌟 ⭐ 🌟 ⭐ 🌟
Donggle profile picture
Wicked its called everything goes right till it is not. The smart people developed a plan B in good times, the others are realizing they need steroids to save their butt. The weak people said I dont need not stinking plan B until one gets hit in the mouth. It is amazing how sports is like investments. All great champs got up till then did not, and few knew when to retire when times were good.
Brad given that DLR is overvalued should we consider swapping DLR for CONE?
Brad Thomas profile picture
@Phil Ross I just published an article on CONE for iREIT subs....would wait on a pullback with CONE....for the speculative appetite, consider IRM. All the best. Brad
Nicholas Ward profile picture
With regard to selling high quality names like DLR - I'm generally opposed. So long as a name like that continues to meet my expectations with regard to annual dividend growth, I'm happy to stick to the old fashioned buy and hold strategy, simply letting those dividends pile up.
Brad Thomas profile picture
@Phil Ross I like CONE/DLR as a pair trade....that has worked well over the years. But wait on a pullback....
Brad Thomas profile picture
iREIT on Alpha: Oil Demand May Have Bottomed: What Midstream Investors Need To Know seekingalpha.com/...
dr futures profile picture
I just took a toe dip with NNN preferred. I'm also looking at DLR preferred, but I'm waiting for a better entry price. @Brad Thomas any thoughts?
Brad Thomas profile picture
@dr futures We are launching a full range of preferred REIT research on iREIT thanks to our collaboration with @Hoya Capital Real Estate ... try us out for a 2 week free trial: seekingalpha.com/... All the best. Brad
The original passage is from Macbeth, I think.
DRIPsexy profile picture
In a way I feel very fortunate that I am still early on in my investing path and able to regularly contribute to investments through a 401k and hold for long term. I don't envy anyone in retirement or close to that has to make large decisions on what to do with their portfolio in this environment.
Brad Thomas profile picture
@DRIPsexy Thanks for reading and commenting....have a great week! Brad
I happened to be at my computer when WPC fell to $39.80. I couldn't believe it, I thought something bad must have happened. By the time I checked many market news sources and the WPC website it was up to $42. I scooped it up. I had previously owned it but sold when it became overvalued in the $80s so I knew a fair amount about them. I feel lucky, the priced bounced back up quickly.
Nicholas Ward profile picture
Congrats! That is an amazing bargain for sure.
Congratulations on your comment comment!
GARAK profile picture
Another author recently raised concerns regarding geopolitical risks for WPC. Do you have an opinion regarding that?
Nicholas Ward profile picture
I like WPC's geographic diversification. It's part of what sets it apart from other names in the NNN space.
Brad. I am a subscriber to one of your metic services and am VERY pleased. I seem to recall you also like several energy play, ET comes to mind. Any thoughts on these. Thanks again
Bull-N-Bear profile picture
I am avoiding any REIT that is in the Retail or Commercial business because I'm not sure if the tenants can pay the rent or lease if the COVID-19 Virus Continues its carnage. A Vaccine will not be available until early next year. Who knows how much more lower these REIT's will drop? Already, retailer, J. Crew just applied for bankruptcy. I'm sure JC Penney is near by. The Cheese Cake Factory decided not to pay their RENT. How is letter 'O' going to be able to pay a monthly dividend. And please everybody remember that when a company pays a dividend, the stock drops by that amount. It's nice that the CEO says they will do whatever it takes. The REITs that will do well are UP Already. I wouldn't buy them either at this point. But let's look at what these REITS do. DLR operates server cloud farms. These farms power at home Internet usage like AMAZON, NETFLIX, Microsoft, or gaming companies like TTWO. (BTW, these companies are doing great) - Okay, how about cell tower 5G REIT like companies. AMT, CCI, and SBAC. These companies are Up too much to BUY, but they are the one's to own. Until, there is a couple of vaccines for COVID-19, I would not touch the Shopping Mall REITs. IMHO, they are in danger of going down and maybe out of business, just like the Airline Industry, Travel Industry, hotel and Casino business, and cruise line industry. Let's not forget about the Energy business. Only the well capitalized business in each respective industry will survive, the rest must merge, go bankrupt, or try to raise money to buy time for a possible vaccine.

BTW, the month of May is tough to be Long, but also a very good opportunity to BUY low. Good luck to all !
2bears profile picture
Actually, in reality, stocks don't drop by the amount of the dividend. If that was the case, stocks like O and NNN would be selling for nothing as I have owned these for over 20 years and have received much more in dividends than the purchase price.
Bull-N-Bear profile picture
Understand Dividend Terminology

Dividends are typically paid in cash and given to shareholders quarterly, although some companies pay dividends irregularly or make payouts in the form of shares of stock. Payouts are only made to shareholders that are recorded on the books of the issuing company. A person must be on record as a shareholder by what's known as the record date in order to receive a dividend.
The date two business days before the record date is known as the ex-dividend date, since shareholders who buy the stock after that date are buying shares without the dividend.
The payout date can be days, weeks or even months after the record date. This is the date that the dividend is actually paid out to shareholders.

Stock Price on Ex-Dividend Date

Stock market specialists will mark down the price of a stock on its ex-dividend date by the amount of the dividend. For example, if a stock trades at $50 per share and pays out a $0.25 quarterly dividend, the stock will be marked down to open at $49.75 per share.

However, the market is guided by many other forces. If a stock is deemed to be undervalued by investors, the stock price may be bid up, even on the ex-dividend date. Similarly, if investor perception of the value of a stock on any given day sours, the stock may sell off much more than the simple drop due to the dividend.

Take a Finance Class before making incorrect comments.
good article - useful info / balanced perspective on valuation and buying advice.

i was looking at NETL as a way to invest in basket of triple net - wondering why its yield shows as 0.2 %. why so low when its holdings are around 5% yield ?
Brad Thomas profile picture
@gutcheck Every data feed shows differently for some reason. CNBC shows it’s at 0.2% when yahoo shows 4.40%
Best place to look is the fund site. Sec 30 day yield was 6.6% as of March 31. https://netleaseetf.com/netl Thanks and all the best. Brad
Ian Bezek profile picture
Very nice article - this is a great way to think about valuations. You're spot on about DLR, folks should be patient there. People are paying a steep price for safety right now in data centers.
Brad Thomas profile picture
Thanks @Ian Bezek … We just published $IRM on iREIT...a higher risk data center play: seekingalpha.com/...

Lots of earnings this week....little time for sleeping well at night :)
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