Twenty nineteen was a great year for stocks. Nearly all sectors and types of equities, including REITs, soared in the last 12 months. But that's thanks to the Fed's low interest rate regime. Not only have income investors been left out in the cold, but the stock market's surge could sputter in 2020.
The gains were spectacular and mostly unexpected as the economy teetered on a globally fueled slow down.
Despite the risks of recession, risk trading was most definitely on.
Inflation was blown to bits, and most everyone knew it.
That's why the yield curve flattened and, for an ever brief moment this past summer, inverted.
The Fed quickly reacted to bond market forces and adjusted short-term rates lower.
That did the trick in steepening the curve and allowing equity investors to proceed apace without risk of a decline.
Crisis averted, but that pushed yields down across the board.
Our top REIT for 2020 could climb to five times its current price, and shares yield a solid 7.9%. Click here to get the Best REIT to Buy for 2020...
So where does that leave us as the calendar turns?
About the only thing that is certain is that rates are going to be low.
I believe stocks will go up in 2020 absent any surprises. I just believe those gains will be in the single digit range at best.
That's why I want REITs in my portfolio.
REIT investors get paid now. They don't have to wait for appreciation.
The dividend is all that matters, and as long as that dividend is paid, all will be good in 2020.
When an investor can lock in 5% annualized return, who wouldn't take that deal?
Interest rates at all levels of the curve are moving lower with little sign such will change.
Getting 5% then is double or triple current one-year rates in the market.
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One REIT that pays more than 5% is Kimco Realty Corp. (NYSE: KIM).
Kimco specializes in open-air retail real estate.
Given the disaster in retail one would expect shares of Kimco to be pummeled in 2019.
That's not been the case.
Shares of Kimco are up more than 30% in 2018, outpacing the rest of the market.
While a vast majority of stocks in the retail space collapsed in 2018, continuing a multiyear decline, Kimco rallied.
It rallied because of the dividend and, more importantly, the stability of that dividend.
With a yield so juicy, investors have to be focused on getting paid, especially in the near term.
That means looking at earnings and cash flow.
REITs are required by law to distribute those profits to shareholders, thus to the extent a profit is there. So investors can safely assume they will get paid.
Kimco analysts expect the company to make $0.77 per share in 2019 and $0.76 per share in 2020.
That's what I love to see, consistency of profits.
There are no worries about cash flow being impacted by the struggles of brick and mortar retailers.
The fear factor in retail is beyond excessive, but who cares?
The resulting valuation of companies like Kimco creates opportunities for those looking for their return first.
I've said before, my expectation for 2020 is that buyers will emerge asking to be paid today.
That opens the door to appreciation on the stock in addition to the dividend.
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