REITs Have Performed Poorly, But Realty Income Is Doing Relatively Better

Dec. 08, 2022 6:59 PM ETRealty Income Corporation (O)REM, VNQ, SCHG, XLK, SLG12 Comments
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Summary

  • These are very dark days for equity REITs and mortgage REITs, with these areas down ~25% and ~30% on a price-only basis, respectively, so far in 2022.
  • The lesson in 2022, as it has been every year: don’t chase yield for yield’s sake. It could be hazardous to your financial health.
  • Please understand: a dividend is generally considered to be capital appreciation that otherwise would have been achieved had the dividend not been paid. It's not a value-creating dynamic.
  • Institutional investors seem to be fleeing the REIT sector, but retail investor interest in REITs still seems unusually high. Will mom and pop get burned?
  • One of our favorite REITs is Realty Income Corporation, in part because it has a large fan following to hold up the stock. We continue to be cautious on the REIT sector as a whole, however.

Miniature colorful house on stack coins

jaturonoofer

By Valuentum Analysts.

These are very dark days for equity real estate investment trusts ("REITs") (e.g., Vanguard Real Estate ETF (VNQ)) and mortgage REITs (e.g., iShares Mortgage Real Estate Capped ETF (REM)), with the VNQ

REITs have been absolutely obliterated on a relative basis the past five years.

REITs have been absolutely obliterated on a relative basis the past five years. (Image Source: Morningstar)

Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%.

Image: The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. (Image Source: Valuentum)

Realty Income's Investment Considerations

Realty Income's Investment Considerations (Image Source: Valuentum)

Realty Income has outperformed a broader REIT index this year.

Realty Income has outperformed a broader REIT index this year. (Image Source: Morningstar)

This article was written by

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16.97K Followers
We offer subscriptions and exclusive newsletters. Visit our website at www.valuentum.com for more information. Valuentum is an independent investment research publisher, offering premium equity reports and dividend reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information. Please read our Disclaimer that applies to all articles published on Seeking Alpha: http://www.valuentum.com/categories/20110613. Follow us on Twitter: @Valuentum

Disclosure: I/we have a beneficial long position in the shares of SCHG, SPY either through stock ownership, options, or other derivatives. 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.

Additional disclosure: Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson's household owns shares in HON, DIS, HAS, NKE. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

This article or report and any links within are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this article and accepts no liability for how readers may choose to utilize the content. Assumptions, opinions, and estimates are based on our judgment as of the date of the article and are subject to change without notice.

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