Money Morning Special Situation Strategist Tim Melvin is something of an expert when it comes to REITs. He recently had an excursion to the New York University Schack Institute of Real Estate's REIT symposium.
Now, he's giving us his top two REITs to invest in today...
The REIT symposium takes place every year, and it's an event that brings in leaders from across the industry. It's packed with opportunities and trends in the sector.
At the annual forum, they discuss REIT valuations based on breakthroughs in medicine and biotechnology as well as the impact 5G will have on cell-tower REITs.
There are also talks focused on offices, hotels, retail real estate, multifamily housing, and everything under the sun involving the property market.
Top private equity leaders like BlackRock Inc. (NYSE: BLK) and KKR & Co. Inc. (NYSE: KKR) were present at the April 3rd event. Investment bankers and analysts for major firms like Bank of America Corp. (NYSE: BAC), Goldman Sachs Group Inc. (NYSE: GS), Citigroup Inc. (NYSE: C), and JPMorgan Chase & Co. (NYSE: JPM) also attended.
The event is an excellent way for retail investors to channel their investment dollars into REITs. Even if you missed the meeting, here is everything you need to know about REITs from Max Wealth's founder, Tim Melvin, with his two favorite REITs.
Real estate investment trusts (REITs) are companies that finance or own income-producing real estate properties.
These investments are very similar to mutual funds since they provide you capital appreciation and a stable income stream.
There are many different kinds of REITs.
In the early days, they were divided into residential and commercial properties. Nowadays, they're much more specialized. There are REITs focused on travel and resort properties, shopping malls, apartment complexes, medical offices, technology, and... well... you get the point.
REITs are actually one of the fastest dividend-paying stocks out on the market.
The National Association of Real Estate Investment Trusts (NAREIT) says there were 136 REITs in 2008. Since then, that number has increased 65% to 225.
But REITs are a lot more prevalent in the real estate market than many retail investors may realize...
NAREIT says REITs account for roughly $2 trillion in commercial real estate assets, including mortgage REITs and public equity.
REITs are greatly outperforming the broader market. Back in March, the one-year return on all REITs was 19.35% while the S&P 500 was 4.68% and the Dow Jones Industrial average was 5.95%.
In the last 20 years, all equity REITs had an average annual return of 15.04% compared to the S&P 500's 8.33% and the Dow's 9.08%.
In 2017 alone, publicly listed REITs paid $53.2 billion in dividends to investors. The yield across all REITs was 4.3% while the S&P 500 was 2.04%. And sure, 4.3% is a respectable yield, but some REITs offer much higher returns.
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REITs earn returns in the form of rent or appreciation. Then, trusts are required to pay back 90% of their taxable income to investors in annual distributions.
In fact, REITs provide a steady income stream. But because there are so many options, it can be pretty challenging finding the best ones for you.
Below, we have Tim Melvin's favorite REITs to invest in today...
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The first REIT is Equity Commonwealth (NYSE: EQC). This Chicago-based REIT specializes in commercial office properties throughout the United States.
It's headed by legendary real estate investor and Chair Sam Zell. Zell and a team of activist investors took over this REIT five years ago and have trimmed the portfolio by selling off non-core properties.
The cash was then used to redeem preferred shares and pay down debt.
Right now, EQC has very little debt and is sitting on a massive stockpile of $2.7 billion in cash. That level of excess cash means it's ripe with opportunity for shareholders during market downturns.
While this REIT doesn't pay a dividend right now, it's structured to do so in the near future. And this announcement alone will increase share prices.
After the trust purchased over 2.9 million shares, it announced an additional $150 million in buybacks.
So, if you're looking for a REIT that spells massive profits and long-term payout potential... this one should be at the top of your list.
The second best REIT to buy is Starwood Property Trust Inc. (NYSE: STWD).
This Connecticut-based REIT operates in four different areas through the United States and the EU: real estate property, commercial and residential lending, real estate investing and servicing, and infrastructure lending.
This REIT specifically invests in real estate debt, but it also owns major properties like medical office properties, multifamily properties in Florida, and industrial and retail properties in Florida, Minnesota, Utah, and Texas.
For the past four quarters, this REIT has consistently beat earnings estimates with a whopping 8.7% dividend yield. Its unique combination of best-in-class management and assets makes this another REIT worth holding long-term.
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