Brad does have a favorite REIT, but you’ll have to explore iREIT further to find out what it is. For right now and now, here’s what we can tell you…

No matter how much Brad or any of the iREIT experts like a certain stock – REIT or otherwise – we make sure to treat it as objectively as possible. That means:

• Keeping our portfolios properly balanced. While we might hold larger positions of these special stocks compared to other assets we hold, there’s a limit. We’re not going all in on any one investment… or 50%… or even 10%. That’s because we know even the best of companies can trip, fall, or fail altogether. We want a wide array of eggs in our basket so that if one cracks, we’ve still got plenty of others to make up for it.
• Monitoring our favorites just like we monitor all our other portfolio picks. Past performance is not a promise of future results. Take a company that’s paid and raised its dividend every year for decades on end. While that’s a very good indication it will continue that trend, we make sure to stay up to date on what it buys and sells, and the environment it operates in. That way, we’ve got a probable heads-up in case something does change.

In other words, never fall in love with an investment. Because it’s never going to fall in love with you. 

This is a bit of a tricky question, since there are some examples of REITs that can safely feature an 8% dividend yield, 9%, or higher. Brad has even successfully recommended a 15%-yielder before! This tends to happen when a company falls far out of favor while retaining solid fundamentals and a promising future. Basically, short-term market sentiment just doesn’t match the long-term reality in these exceptions to the rule.  

But most of the time, if a dividend yield is over 7%, it’s a definite red flag. Take extra caution, because chances are high there’s a sucker yield on the loose.

A sucker yield happens when a struggling company’s stock price has sold off enough to significantly raise its dividend. The business might have done something foolish, something illegal (though that happens rarely), or been the victim of unfortunate circumstances. But either way, its mid- or long-term growth prospects have waned. A lot. To the point where it’s going to have to cut its dividend in order to stay solvent. 

And once a company cuts its dividend, you’d better believe its stock price will fall even further. That kind of bad news is never “priced into the stock,” despite constant claims to the contrary. 

Companies with sucker yields tend to have unreliable earnings histories with clear patterns of unsafe dividend payouts. Investors are too often distracted by high-paying dividend yields, becoming hypnotized by the allure of owning securities with such seemingly substantial income. 

You know the old saying though: If it appears too good to be true, it usually is. It’s critical that investors analyze each dividend’s underlining safety, its ability to grow, and the overall merit of the stock. Focus on quality, and you’ll never be victimized by a sucker yield.

The REIT industry reports earnings per share and net income under generally accepted accounting principles (GAAP) because it has to. But it considers that metric incomplete since real estate is so unique compared to other assets. 

That’s why you’ll also want to know about funds from operations, a supplemental measure of a REIT’s operating performance. FFO takes net income, adds in depreciation and amortization expenses as well as losses on asset sales, then subtracts gains on asset sales and interest income.

FFO = Net Income + Depreciation and Amortization Expenses + Losses on Asset Sales – Gains on Asset Sales – Interest Income

Due to the nature of real estate holdings, this can be much more useful in assessing how healthy (or unhealthy) a REIT truly is.

For more about FFO, including its adjustments, click here. 

As described in the previous question, FFO is the primary yardstick for comparative REIT valuations. But it still has definite shortcomings since it subtracts non-cash and seldom-occurring items from earnings. In that regard, it’s rather like a proxy for a REIT’s recurring cash flow that can be used to support dividend payments. 

Recognizing this, some analysts and companies also report adjusted funds from operations, or AFFO. It subtracts recurring capital expenditures from FFO, helping to determine a REIT’s level of normalized cash flow.

AFFO = FFO – Straight-Lined Rents – Capex + Equity-Based Compensation + Lease Intangibles + Deferred Financing Cost 

For more about AFFO – including its downsides – click here. 

iREIT didn’t coin the SWAN acronym, which stands for “sleep well at night”… 

But we’re certainly attracted to stress-free investing. As we scour the dividend universe, we’re always on the prowl for companies that can provide the overall best performance with the lowest risk. 

There are a lot of great investments out there. But it takes more than a good balance sheet to make the SWAN cut. In his book Investing in REITs, the late and great Ralph Block explained how blue-chip REITs (the equivalent of a SWAN), “deliver consistent, rising, long-term growth in FFO and dividends” and “take you safely through the ups and downs of the sector cycles.” 

They don’t always provide the highest dividend yields or even the best total returns in a given year. But they do provide years of safe, double-digit returns, helping set up investors to enjoy secure, enjoyable retirements. 

Block also used his book to identify seven important attributes that blue-chip REIT tend to feature:

• Outstanding proven management
• Access to capital to fund growth
• Balance sheet strength
• Smart sector and geographical focus
• Substantial insider ownership
• Low payout ratios
• No conflicts of interest.

Sound great? They are. But one word of caution: That doesn’t mean they’re worth overpaying for. 

We don’t recommend owning even high-quality stocks unless they can be purchased with a definitive margin of safety. If you can’t buy them at a good or great price (i.e., fair value or a bargain), think twice about buying them at all.

Overvalued stocks always drop eventually. And since we never know if “eventually” is right around the corner, this rule isn’t worth messing with. 

Statista reports that there were 206 publicly listed real estate investment trusts in the U.S. as of 2022. That number is down notably from its peak of 233 in 2014, but don’t be alarmed. This doesn’t mean the sector is unsustainable.

It is true that 2014 was a good year for REITs. While Fitch Ratings gave them a mere “Stable” outlook to start out the year, The Wall Street Journal reported a 32.3% total return (share gains + dividend payouts) from the FTSE Nareit Equity REITs Index with its 148 listed companies to close out the year. “That,” it noted, was “the highest total return since 2006, the year before real-estate values peaked, when REITs returned 35% to investors.”

It’s also true that 2015 wasn’t such a good year for REITs, when nine of their publicly traded brethren dropped off the list. Then again, it wasn’t smooth sailing for most other stock market segments. In fact, REITs ended up outperforming most other sectors that year.

The next few years were pretty steady before dropping again to 217 in 2021 and then again by a whopping 11 REITs in 2022. Why? Not because REITs were failing but because they were going through company-wide mergers, consolidating the industry in very lucrative ways.

That’s the thing about U.S. REITs. They’re always ultimately expanding, whether by adding brand-new companies to the publicly traded list, buying up more and more properties on an individual basis, or swelling their already impressive sector reach. This specialized set of stocks is here to stay – and in a relevant, profitable way!

You can check out the current list of REIT sectors here, explore the larger categories they can fit into here – including public non-listed and private – and see the list of other countries that offer REITs here… a list that, incidentally, continues to expand as well.

The majority of publicly traded REITs can be found listed on the New York Stock Exchange or Nasdaq. There are a few on OTC exchanges for one reason or another, but you should be able to find any of them easily enough on investment and brokerage sites just as long as you know the ticker symbol.

Because these real estate companies trade like stocks, they’re just as easy to invest in as they are to locate. Whether you’re calling your broker to make the order for you or clicking buttons on your own DIY platform, actually purchasing a REIT is pretty much as easy as A-B-C and 1-2-3.

Investors can choose to hold “regular” shares, or preferred shares or bonds when those are offered. They can also take the relatively safe-and-easy route of purchasing REITs through mutual funds or exchange-traded funds. ETFs are an especially popular choice among mom-and-pop investors since they offer exposure to a whole list of investments at the same time – and on the cheap too. 

For more about these different assets, make sure to access our “How to Play It” and “REIT Capitalization” pages. 

Generally speaking, every investor has his or her own risk tolerance limitations. So we recommend maintaining adequate diversification. 

Real estate is an uncorrelated, inflation-linked asset class that complements a multi-structured portfolio. REITs especially offer diversification, potential risk reduction, and return enhancement that can’t be beat. These enhanced dividend stocks provide differentiation due to their liquidity, transparency, and total return characteristics. 

Additionally, public REITs enhance overall portfolio diversification by geography, sector, strategy, property, and tenant. This is an immensely important concept. To quote the late and great investor Sir John Templeton, “The only investors who shouldn’t diversify are those who are right 100% of the time.” 

Sir John, coined the greatest stock picker of the century by Money Magazine, was only right 66% of the time. So if the greatest stock picker in the world needs to be diversified to protect against losses, you’d better believe the average investor can benefit from doing the same. 

As a huge proponent of diversification, Sir John explained in July 1949, “Diversification should be the cornerstone of your investment program. If you have your wealth in one company, unexpected troubles may cause a serious loss. But if you own the stocks of 12 companies in different industries, the one which turns out badly will probably be offset by some other one which turns out better than expected.”  

More than 40 countries currently have REITs. The majority of them mirror the U.S. approach to REIT-based real estate investing. Though, of course, each country’s offerings are at least a little (and sometimes a lot) unique to its specific situation. 

To name a few examples of international REITs, the Netherlands and New Zealand joined the club in 1969, and Australia in 1971. Canada’s first publicly traded REIT began trading on the Toronto Stock Exchange in September 1993, while Germany, Italy, and the U.K. adopted REIT laws in 2007. And much more recently, China began officially experimenting with the idea, allowing IPO after IPO after IPO to happen this decade – and in some fascinating new sectors too.

Want to know more about international REITs? We have a whole page dedicated to them right here for you to explore…