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Government Properties Income Trust (GOV) And 4 Low-Volatility/High-Yield REITs

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Generally speaking, Real Estate Investment Trusts (REITs) have paid attractive yields, similar to the recent returns of this strategy. REITs are legally required to distribute at least 90% of their taxable income to unit-holders. Especially appealing to prudent income investors seeking high yields could be REITs with low volatility of returns over time. Here, volatility is measured as the standard deviation (or variability) of the REITs’ daily price returns over a particular period. On several occasions we have noted that low-volatility strategies have outperformed the broad market over the long run. The pattern of outperformance has also been observed year-to-date.

With a particular focus on the small-cap universe, here is a closer look at four high-yielding REITs with low-volatilities of returns over the past 12 months.

The “fab four”

Government Properties Income Trust (NYSE:GOV) owns commercial properties majority leased to government tenants. It pays a dividend/distribution yield of 6.5% on a payout ratio of 81% of its 2012 normalized FFO. The REIT company owns 84 properties in 32 states and Washington D.C.

Government Properties Income Trust (NYSE:GOV)

Some 94% of its annualized rental income comes from the U.S. Government, 10 state governments, and the United Nations. Strong attributes of this REIT are its stable income streams and a secure dividend, supported by high occupancy rates and the longevity of lease terms. The company’s FFO has been growing through accretive acquisitions, including 13 acquisitions in 2012 worth more than $214 million.

Last year, Government Properties Income Trust (NYSE:GOV)’s normalized FFO increased 2.4% to $2.12 per unit. Despite the fiscal austerity in the United States, the company has been able to sustain its rental income, as government tenants tend to occupy leased space for long periods of time. (Over the past 10 years government tenants have occupied leased space an average of 26 years, according to the company.) Recently, this REIT was named one of “America’s 100 Most Trustworthy Companies” by Forbes. Government Properties Income Trust (NYSE:GOV) is trading at a 2012 normalized FFO multiple of 12.1x. Last quarter, billionaire Israel Englander initiated a new, small position in this REIT.

LTC Properties Inc (NYSE:LTC) is a healthcare REIT that invests in senior housing and long-term healthcare properties through origination of first mortgage loans and acquisition of properties that are leased to numerous long-term care providers. The REIT pays a dividend/distribution yield of 4.3% on a payout ratio of 82% of its 2012 adjusted FFO. The REIT’s monthly cash distributions have grown at an average annualized rate of 3.8% over the past five years. LTC Properties Inc (NYSE:LTC) operates in a traditionally defensive industry and boasts solid fundamentals.
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