Earning income from owning profit-producing assets sounds great. It is.
Real Estate Investment Trusts (REIT) should comprise a part of each person’s asset allocation. Are you living in retirement, wanting supplemental dividend payments? Are you paying down the mortgage on that first house? How about the extra cash to take your family out to dinner? Regardless of the scenario, REITs can be an effective solution to portfolio needs.
Why REITs are Significant
Consider some of the requirements of a REIT:
- Pay a minimum dividend of 90% of the firm’s income
- Hold a minimum of 75% total investment assets in real estate
- Earn a minimum of 75% gross income from real estate-related income
Plus, consider just some of the diversity REITs offer.
| TYPE | BENEFIT |
|---|---|
| Equity REITS | Own or manage income-generating assets. Capital gains from property sales. |
| Retail | |
| Office | |
| Industrial | |
| Mortgage REITs | Earn interest revenue on mortgage loans. Faster response to interest rate changes than equity REIT. |
| Specialty REITs | Unique to each individual fund. |
According to REIT Monitor, the average yield for the 17 REITs in the S&P 500 by mid-May was 3.4%. This return is 74% higher than the total yield of the S&P 500. And, this value does not realize the appreciation of the assets and stock prices of the securities. Basically, REITs are great investment vehicles that can cater to individual needs.
Capitalizing on Opportunities
First, consider the current environmental and political conditions in Europe. European governments, for example, are making a massive push toward cutting fossil fuels and carbon dioxide. How? By replacing coal with wood.
But the European energy and environmental sectors are full of restrictions, regulations, and red tape. So, countries are turning to American timber to power their plants. As a result, REITs like Weyerhaeuser Company (NYSE:WY) and Plum Creek Timber Co. Inc. (NYSE:PCL) are poised to gain.
Weyerhaeuser Company (NYSE:WY) manages over 20 million acres of North American timberland and operates three business segments: home building, timber, and real estate. The three-pronged approach provides some market stability. Moreover, though, the firm’s price is undervalued. It rebounded from the 2009 crisis and is generating consistent cash flow while offering a 2.67% dividend yield. Additionally, the moving average is increasing while supporting the current stock price. I would not be surprised to see Weyerhaeuser Company (NYSE:WY) reach new highs within the coming summer season. CEO of Third Avenue Management and $12 billion fund manager David Barse agrees that Weyerhaeuser Company (NYSE:WY) is undervalued. It is worth a look.
