Why REITs are a great investment option

REITs are a great way to get steady returns from your investments. Traditionally REITs have been favored by conservative investors who have a low risk/low return perspective. However, in today’s world of ultra-low yields, REITs look attractive for a wider audience. A good spread of REITs in your portfolio can easily yield returns of 5-7% or more, with low risk on your capital.

For those that don’t know, REITs are Real Estate Investment Trusts. These are US companies that own real estate properties in the commercial and residential space and earn lease/rental income from those properties. A portion of the rental income is distributed to the shareholders of the REITs. In fact, US laws require REITs to distribute at least 90% of their taxable income as dividend to shareholders. Since the shares are traded on the stock market, there is easy liquidity if you want to exit the investment.

Following a few examples of REIT stock yields that I have explored:

·         WSR (Whitestone Realty) – This company holds commercial real estate properties in Texas, Arizona and Illinois. The company has paid monthly dividend of 9.5 cents every month for the last 6 years. At a share price of $14.54 (as of Aug 26, 2016), this gives a yield of 7.8%.

·         Liberty Property Trust (LPT) – This company invests in industrial and commercial properties and is based in Pennsylvania. The stock has produced an average dividend yield of 5.4% over the last five years.

·         Washington Real Estate (WRE) – This company operates in the DC metro area and manages a variety of properties in office, industrial and retail space. The stock has produced an average dividend of 5% over the last five years.

·         WP Carey (WPC) – This is a NYC based company. The stock has produced an average dividend yield of 5.3% over the last five years.          

Traditionally REITs have been recommended for older investors who look for a steady income in their post retirement years. However, in the current investment climate, I would recommend all investors to park some of their money in this asset class. This component can not only reduce the volatility of your portfolio, but may very well give better returns than the S&P 500 over the next 3-5 years.