Hunting for Yield? Snag This “Crash Proof” REIT
If you’re a big yield hunter, it’s difficult to determine ahead of time which high-income investments can turn around to maul you. It brings to mind a line from the deadpan comedian Steven Wright: “Experience is something you don’t get until just after you need it.”
Ari Charney, chief investment strategist of Utility Forecaster, puts it another way:
“Hindsight often makes tough decisions seem simple or obvious…
While we know that markets eventually rebound, we don’t know when it will finally happen or how much longer the companies hit hardest during downturns can endure if the situation gets even worse.”
Ari performs double-duty as the income expert on our flagship publication, Personal Finance. He points out: “Double-digit yields are nice in theory, but yield chasers should beware.”
A different kind of Trump play…
Below, I highlight a dividend payer with unique characteristics that should hold it in good stead, come what may this year. This real estate investment trust (REIT) also is a play on President Trump’s repeated vow to stem illegal immigration.
Whether you agree or disagree with Trump’s hard-line immigration stance, his border crackdown is a fact of life that’s unfolding with greater urgency every day. Analysts tend to focus on Trump’s promise to boost defense and infrastructure spending, or to reduce taxes and banking regulations, but little attention is paid to the moneymaking potential of the federal government’s greater push for immigration enforcement.
More about this specific REIT in a minute. But first, let’s examine why REITs overall make sense for investors who seek a steady stream of income.
As the Federal Reserve continues to tighten, conventional wisdom says that higher interest rates are bad for REITs, but this asset class is holding its own. Year to date, the REIT-intensive iShares U.S. Real Estate ETF (NYSE: IYR) is up nearly 7%, compared to nearly 10% for the S&P 500. But rather than obsessing about the Fed’s next move and letting it dissuade you from putting money into a REIT, you’re better off focusing on the stock’s quality and long-term prospects.
REITs are all-weather, total return investments. Although the occasional bust from a financial crisis does happen, REITs generally hold their value in a down market because the rents their tenants pay are contractual obligations. Rents also tend to rise with inflation, helping offset its corrosive impact on purchasing power.
When you’re considering REITs, look for those that are consistently growing their funds from operations (FFO), which is how a REIT reports earnings. Because FFO doesn’t include gains or losses on property sales, nor depreciation, the metric gives you an idea of how a REIT is faring on a real cash basis.
You also want REITs that are in stable markets, where rents aren’t falling and vacancy rates aren’t high. Those REITs can create FFO growth by steadily raising their rents without scaring off tenants. Plus, they’re more recession-resistant because tenants know that they have a good deal.
The REIT’s management team also is an important consideration. Is there a steady deal flow as management reinvests available cash, or is the team resting on its laurels? When management has demonstrated a consistent track record of profitable deals, your money is in good hands.
I want YOU to be my landlord…
One REIT that fits all of those criteria is Easterly Government Properties (NYSE: DEA). U.S. government agencies lease most of the space in Easterly’s properties, so it’s a safe bet that this REIT’s leaseholders will stick around, regardless of economic ups and downs. With Uncle Sam as a tenant, Easterly is a crash-proof haven amid a risky and overvalued broader market.
That’s especially true now that the FBI and Immigration and Customs Enforcement (ICE) are Easterly’s main tenants, accounting for about a quarter of the REIT’s income. Because of these tenants’ security concerns, their space must be designed to strict specifications, which means they can’t just move on a whim.
With a market cap of $958.6 million, Easterly Government Properties focuses primarily on the acquisition, development and management of Class A commercial properties that are leased to U.S. government agencies through the General Services Administration. All of the REIT’s properties are currently leased for seven-year terms.
DEA owns 44 properties that consist of about 3.2 million square feet. The majority of DEA’s buildings are office buildings (75%), and the rest are mostly laboratories and courthouses.
Based in Washington, DC and founded in 2011, the REIT’s management has been turning in solid FFO growth through a series of property acquisitions. Most of those properties were already occupied by a law enforcement agency, while the rest were owned by some other government agency. Given that track record of successful acquisitions and the government’s preference of leasing rather than buying space, it’s likely that management will continue finding profitable deals.
Easterly Government Properties is the only internally managed REIT with a focus on investing in U.S. government-leased buildings. That’s a rock-solid business model, because the U.S. government is the largest employer in the world and the largest office tenant in the country.
The average analyst expectation is that DEA will rack up year-over-year earnings growth of 63.6% in the current year and 22.2% next year. The current dividend yield is a robust 4.76%.
Questions or comments? Shoot me an email: firstname.lastname@example.org — John Persinos
Mark your profit calendar…
As I’ve just explained, Easterly Government Properties is a sturdy income-generating machine, backed by the financial might of the United States.
But there’s more than one way to ensure steady income. Jim Fink, chief investment strategist of Options For Income, has devised a trading system that cranks out a big gain not monthly or quarterly but… once a week.
It’s like getting an extra paycheck, week in and week out. In fact, the gain is so reliable that you can schedule it on your calendar.
These “paychecks” can range in value from $1,150 to $2,800, but generally average out to $1,692.50.
Jim has amassed a personal fortune of over $5 million using his strategy. Now he wants to share his proprietary (but astonishingly simple) trading system with you.
Want to know how he does it? Click here for all the details.