{"id":44082,"date":"2013-11-12T16:08:15","date_gmt":"2013-11-12T21:08:15","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=44082"},"modified":"2013-11-12T16:08:15","modified_gmt":"2013-11-12T21:08:15","slug":"3-reits-to-buy-during-the-next-round-of-taper-tantrum","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/11\/12\/3-reits-to-buy-during-the-next-round-of-taper-tantrum\/","title":{"rendered":"3 REITs to Buy During the Next Round of \u201cTaper Tantrum\u201d"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a><\/p>\n

REITs are on sale again.\u00a0 Last week\u2019s better-than-expected jobs report sent bond yields soaring and caused the prices of anything that \u201clooks\u201d like a bond\u2014such as conservative REITs\u2014to drop like a rock.<\/p>\n

We\u2019ve seen this show before, and we already know how it ends.\u00a0 It appears that we\u2019ve fallen into a repeating cycle:<\/p>\n

    \n
  1. Fed announces that quantitative easing will continue indefinitely, so long as employment picture is weak.<\/li>\n
  2. Yields fall and the prices of income investments drift higher.<\/li>\n
  3. A positive blip of economic data causes investors to panic, fearing that tapering is imminent.<\/li>\n
  4. Yields soar and the prices of income investments plummet.<\/li>\n
  5. Fed clarifies that economy is still weak\u2026and reiterates step one.<\/li>\n<\/ol>\n

    I don\u2019t want to get into the game of Fed handicapping because, as we\u2019ve seen over the past six months, the Fed seems to have a real talent for doing the unexpected.\u00a0 But just for grins, let\u2019s take a look at the jobs report<\/a> that caused the last selloff.<\/p>\n

    The economy added 204,000 jobs in October, significantly higher than the 120,000 expected by the Street.\u00a0 Yet the unemployment rate actually ticked up a little, from 7.2% to 7.3%.\u00a0 Average hours worked was unchanged, and the number of persons employed part time rather than full time for \u201ceconomic reasons\u201d was little changed. \u00a0And the labor force participation rate\u2014which Chairman Bernanke took note of in his last announcement\u2014declined fairly sharply from 63.2% to 62.8%.<\/p>\n

    Most importantly, one month does not make a trend, and all of these numbers are subject to revision.<\/p>\n

    Will the Fed taper this year?<\/p>\n

    Maybe.\u00a0 Maybe not.\u00a0 I\u2019m not sure if even Chairman Bernanke or Janet Yellen know the answer to that question at this point.\u00a0 But regardless, my income strategy is the same.\u00a0 I am opportunistically picking up shares of REITs that are raising their dividends whenever I see a selloff.\u00a0 And today, I\u2019ll share five of my favorites.<\/p>\n

    The first is Realty Income<\/b> (<\/span>O<\/a>)<\/span>, also known as the \u201cMonthly Dividend Company.\u201d\u00a0 Realty Income has been a dividend-paying and dividend-raising monster since going public in 1994.\u00a0 In 19 years, it\u2019s made 519 dividend payments and hiked the dividend 73 times.
    \n    \"Realty-Income-Dividends\"<\/a><\/p>\n

    Realty Income\u2019s conservative portfolio of triple-net-leased properties has been a rock of consistency throughout the past five years of on-again, off-again crisis.\u00a0 But that bond-like stability is exactly what is hurting the share price today. \u00a0Because the company locks its tenants into long-term leases, rents tend to rise slowly and consistently. \u00a0That’s great during a time of stable or falling bond yields. \u00a0But when yields are soaring–as they are today–it makes the REIT less attractive as a bond substitute.<\/p>\n

    At $40.00, Realty Income sports a current dividend yield of 5.46%. And again, the payout will almost certainly grow with time, raising your yield on cost. \u00a0Given the quality of the portfolio–and given its history of weathering crisis–I would gladly take 5.5% from Realty income over 2.7% from “safe” Treasuries from a bankrupt and disfunctional federal government.<\/p>\n

    I recommend accumulating shares of Realty Income at or below $42.00. \u00a0I’m actually comfortable buying at higher prices, but I see no reason to pay them at this time. \u00a0Be patient and accumulate \u00a0new shares every time we get a taper scare. \u00a0You’re locking in a great yield on a stock you can hold forever. \u00a0And yes, I mean “forever” literally.<\/p>\n

    Next on the list is National Retail Properties<\/strong> (<\/span>NNN<\/a>)<\/span>, a competitor of Realty Income’s in the triple-net retail space. For those unfamiliar with the term, in a “triple net” lease the tenant is responsible for property taxes, insurance and maintenance. \u00a0If a pipe breaks or a health inspector discovers black mold, it’s not the landlord’s problem.<\/p>\n

    This makes the revenues and profits of triple-net leased properties ridiculously stable, assuming your tenants are good credits and your occupancy rates are stable. \u00a0And this is certainly the case for National Retail Properties. \u00a0The REIT owns\u00a01,850 properties across 47 states with a total\u00a0gross leasable area of approximately 20.3 million\u00a0square feet. Current occupancy is 98.1%.<\/p>\n

    Tenant concentration is sometimes a risk for triple-net landlords. \u00a0Not so for National Retail Propertoes. \u00a0The REIT has\u00a0more than 350 tenants\u00a0in 38 industry classifications.
    \n    \"National-Retail-Properties-Dividends\"<\/a>
    \nNational Retail Properties has raised its dividend for 24 consecutive years and currently yields 5.0%. \u00a0I would recommend buying every time it dips below $35.00.<\/p>\n

    And finally, we come to Digital Realty Trust<\/strong> (<\/span>DLR<\/a>)<\/span>, a REIT that specializes in data centers. \u00a02013 has been a rough year for REITs in general, but DLR has been beaten like the proverbial red-headed stepchild. Earlier in the spring, hedge fund Highfields Capital made a very public short bet <\/a>on Digital Realty, noting that the REIT was facing new competition from the likes of Amazon.com<\/strong> (<\/span>AMZN<\/a>)<\/span>, Microsoft<\/strong> (<\/span>MSFT<\/a>)<\/span> and Google<\/strong> (<\/span>GOOG<\/a>)<\/span> among others.
    \n    \"chart\"<\/a><\/p>\n

    Digital Realty’s quarterly earnings seemed to confirm this; earnings came in below expectations, and funds from operations (<\/span>FFO<\/a>)<\/span> were actually down year over year. \u00a0And management has lost serious credibility with Wall Street, as they fumbled an announced accounting change (which actually brings the REIT more in line with GAAP) and have generally done a poor job of communicating.<\/p>\n

    Yet this bearish story doesn’t seem to fit reality. The REITs\u00a0two primary competitors–CoreSite Realty<\/strong> (<\/span>COR<\/a>)<\/span> and DuPont Fabros Technology<\/strong> (<\/span>DFT<\/a>)<\/span>–have been reporting healthy FFO increases, indicating that the macro environment cannot be as bad as Highfields seems to think. \u00a0And Digital Realty has continued to grow its portfolio, with lease signings through the first three quarters of 2013 already higher than full-year 2012.<\/p>\n

    Digital Realty is a very different type of REIT than O or NNN. \u00a0 It operates in a more volatile sector and lacks their long track records. \u00a0But as an investor, you’re also getting paid handsomely to accept these risks. \u00a0Digital Realty sports a current yield of 6.8%, and the payout has been growing steadily.<\/p>\n

    Company insiders certainly appear to see value. \u00a0Three officers have made significant purchases since August<\/a>, buying throughout the share price decline.<\/p>\n

    Again, Digital Realty is more speculative than O or NNN. \u00a0But at current prices, I would hardly call it risky. \u00a0I would recommend accumulating shares below around $52.00 per share. \u00a0At time of writing, the shaes traded for $46.03.<\/p>\n

    Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long O and NNN.\u00a0Click here<\/a>\u00a0to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his\u00a0<\/i>2014 Macro Trend Profit Report.<\/em><\/p>\n

    This article first appeared on InvestorPlace<\/a>.<\/p>\n

    This article first appeared on Sizemore Insights as 3 REITs to Buy During the Next Round of “Taper Tantrum”<\/a><\/p>\n

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