investing

Earn Up to 6% Yield by Investing in REITs

Since real estate companies borrow money to finance their purchases, rising rates could squeeze their profit margins.

Owning everything from office buildings to self-storage facilities, REITs rake in rents and must pay at least 90% of their taxable income to shareholders. As long as they can keep raising rents and dividend payments, the stocks should fare well. Indeed, REITs’ underlying properties should post a 4.5% average gain in operating income this year, fueling dividend growth in the “high single-digit” range, says investment firm Lazard.

Earnings for All

Risks to your money. Rising interest rates could hurt REITs, which typically take on a lot of debt to buy properties. Steeper rates would increase their financing costs and could depress real estate values. Some types of REITs are pricey, and some may not be able to hike their dividends.

Hire a pro. Yielding 2.4%, T. Rowe Price Real Estate (TRREX) emphasizes big, high-quality REITs. Although its yield is relatively low, it earns high marks for consistency and avoiding big losses in down markets, says Morningstar. Vanguard REIT ETF (VNQ, $84), which tracks an index of REIT stocks, costs just 0.12% in annual fees and yields 4.1%. (All prices and returns are as of March 31.)

Do it yourself. In the residential space, AvalonBay Communities (AVB, $190, 2.8%) looks appealing. Managing more than 83,000 apartment units in 11 states and Washington, D.C., the firm reported a 5.4% year-over-year increase in rental revenues in the fourth quarter of 2015. It’s also expanding steadily, with acquisitions and new developments, and is “firing on all cylinders,” says Credit Suisse, which expects the stock to hit $200 in the next 12 months.

Crown Castle International (CCI, $87, 4.0%), a REIT that owns cell-phone towers, is benefiting as wireless networks expand. Tenants are major telecom firms that typically sign long-term leases with Crown. With its tower network growing steadily, the REIT aims to hike its dividend by 6% to 7% annually over the next few years.

Also attractive is EPR Properties (EPR, $67, 5.8%), a REIT that focuses on recreational venues, such as movie theaters and golf courses, along with charter schools and day-care centers. With revenues rising, the REIT should generate annual returns, including dividends, in the “mid teens,” says Matthew Berler, comanager of the Osterweis Fund.

Most Popular

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA
IRAs

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA

Traditional IRAs are set up in a way that basically incentivizes you (and your heirs) into paying the highest tax bill possible. Don’t fall for it. Co…
July 4, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 15 Best Stocks for the Rest of 2022
stocks to buy

The 15 Best Stocks for the Rest of 2022

The lesson of the past two years: Be ready for anything. Our 15 best stocks to buy for the rest of 2022 reflect several possible outcomes for the seco…
June 21, 2022

Recommended

7 Common Investing Myths, Debunked
investing

7 Common Investing Myths, Debunked

The "conventional wisdom" is sometimes anything but. Financial experts dissect seven frequently touted lines of bad advice.
July 6, 2022
How to Go to Cash
investing

How to Go to Cash

What exactly does it mean to 'go to cash,' and what should you do once you have?
July 5, 2022
Is the Stock Market Closed for the Fourth of July in 2022?
Markets

Is the Stock Market Closed for the Fourth of July in 2022?

Independence Day falls on a Monday in 2022, so the bond and stock markets will enjoy a long holiday weekend. Here's a look at the markets' holiday hou…
July 1, 2022
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022