My next “Fool Revisited” piece is another “screener” piece about a sector. The “hottest dividend sector” mentioned in the headline is REITs, which are a special kind of entity that are (typically) prized for their dividend yields. But instead of simply plugging in the mortgage REITs that were (and still are) in the news, I wanted to look for relatively “safe” investments in some of the other REIT segments.
Safe is a loaded term obviously, but in this context, I was looking for REITs that weren’t reliant on interest rate spreads to maximize profits. One of the best business models (in my humble opinion) for long-term sustained wealth in this country is to have someone else pay your mortgage(s), and if you can find an industry with specialized buildings, even better! Instead of being at the whims of interest rates and capital availability, as long as you can find a tenant for your office building, you should be golden.
Though I mentioned – and tickered – seven different REITs, I wasn’t too positive about Chimera Investment (NYSE: CIM) in this context, if only because its focus on dealing with mortgage debt. Chimera has been a strong yielder because of this, helping to goose its overall return. Of the seven REITs mentions, it was third behind the less sexy Pebblebrook Hotel Trust (NYSE: PEB) and DCT Industrial Trust (NYSE: DCT), but it did trail the overall return of the S&P 500. The performance of the others was not nearly as great (since article publication on November 1, 2011 through February 23, 2018):
|Stock||Start Price||End Price||CAGR||Total Growth||Value of $10,000|
|Medical Properties Trust (NYSE: MPW)||$9.69||$12.66||4.32%||30.65%||$13,065|
|Pebblebrook Hotel Trust||$14.93||$35.46||14.67%||137.51%||$23,751|
|DCT Industrial Trust||$16.96||$56.22||20.89%||231.49%||$33,149|
|Government Properties Income Trust (NYSE: GOV)||$13.87||$15.83||2.11%||14.13%||$11,413|
|Senior Housing Properties Trust (NYSE: SNH)||$13.61||$16.05||2.64%||17.93%||$11,793|
|Hersha Hospitality Trust (NYSE: HT)||$12.35||$17.45||5.62%||41.30%||$14,130|
Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits
The two leaders in this group aren’t super sexy companies – DCT Industrial owns a bunch of non-descript warehouses that are leased for industrial use. Pebblebrook Trust is in the hotel business, owning the buildings that some major hotel brands then lease from them. I really liked Government Properties after I discovered them, but it looks like the market hasn’t shared my affinity for a company that owns a bunch of office buildings that are leased to local, state, and federal government.
Before deciding to invest in any of these companies, I’d have to go back and see if their business is still predicated on building ownership or if they have shifted to ore debt servicing. The debt-to-equity ratio that I used to examine these companies 6+ years ago is as good a place to start as any, but I would also like to see where they are buying properties and what kind of occupancy status they have. Screening like I did in the original article is a good way to pare down the list and look for above average companies within the sector, which will hopefully point you to a handful of companies instead of having to peruse dozens or hundreds.
Until next time…
Disclaimer: I do not own currently own shares in any of the mentioned companies, and I have no plans to purchase shares of any company within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.