I've been getting a lot of emails about real estate investment trusts (REITs) lately. These are companies that own various forms of real estate and, by law, must pay out 90% of their profits in dividends. As a result, the dividend yields on REITs are higher than the yields on most stocks. REITs typically invest in a specific area in real estate. You can find REITs that are focused on shopping malls, apartments, student housing, cellphone towers, data centers, senior care facilities, private prisons, industrial properties, self-storage, mortgages and more. Together, REITs own $3 trillion in real estate in the U.S. They each have benefits and challenges specific to their industry. For example, changes to Medicare can have a big effect on senior care REITs. The COVID-19 pandemic impacts retailers' ability to pay rent to mall REITs. It's certainly understandable that REITs have underperformed the market since the pandemic-caused sell-off. But despite REITs' recent underperformance, investors salivate at some of the high yields they offer. In this tricky environment, I prefer REITs that are more or less recession-proof - companies like Omega Healthcare Investors (NYSE: OHI), whose tenants are operators of assisted living facilities. It's important to note that Omega doesn't run the nursing homes, but if the owner of the business wants to stay in business, it needs to pay its rent to Omega. The stock yields 8.7%. Digital Realty Trust (NYSE: DLR) is a stock I've liked for a long time. It operates data centers. Giant companies like IBM (NYSE: IBM) and Facebook (Nasdaq: FB) rent shelf space in the company's data centers, which provide security, cooling systems and other technology needed to keep the customers' servers running. The stock yields 3.3%. |
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