Investors frequently mistake volatility for risk. The two are not synonymous. Volatility reflects price movement; risk is probability of permanent capital loss.
That said, volatility influences risk perception and investor behavior. Investors frequently lose nerve when stock prices whipsaw, especially if the whipsawing is downward in focus. The probability of long-term capital loss might be low, but the perception is that a temporary loss of capital is a permanent loss.
The Best REIT for High Yield and Low Volatility[ad#Google Adsense 336×280-IA]Income investors with a low-volatility threshold should consider Gladstone Commercial Corp. (NASDAQ: GOOD), a small-cap ($302-million market cap) commercial REIT based in McLean, Va.
Gladstone isn’t a go-go growth investment, but it keeps the needle moving.
Over the past seven years, Gladstone has grown its building count by 77% to 94 buildings from 53, and the area count 80% to 10.1 million square feet from 5.6 million square feet.
The weighted average yield on its properties is a respectable 9%, up from 8.8% 12 months ago.
Gladstone’s properties are geographically diverse, spread across 23 states from Connecticut to Texas to California. They are also diversified by use, comprising commercial, industrial, and retail with tenants that range from small businesses to large public companies. Many of Gladstone’s tenants include middle-market companies that operate a variety of businesses: telecommunications, healthcare, chemicals, machinery, food distribution, banking, and manufacturing.
Focusing on these middle-market companies enables Gladstone to create an economic moat because it opportunistically acquires properties that lack the girth to appeal to the larger REITs. While it may seem risky to take on smaller tenants, the success of this strategy is apparent with the occupancy rate – 97% of the portfolio’s total square footage is occupied.
The fact that Gladstone’s properties are so highly occupied, and current to boot, is no surprise. Gladstone obviously vets its tenants’ financial statements, but it also vets the tenants themselves with probing interviews. In a National Association of Real Estate Investment Trusts (NAREIT) Investor Forum, Gladstone Chairman and CEO David Gladstone said, “The tenant is everything to us… We go in as if we were lending them money or buying their business.” Management’s attention to quality is reflected in its non-existent delinquency rate.
Attention to financial details and tenant character is backed by triple-net leases, the most conservative, risk-averse leases in the business. With a triple-net lease, the tenant agrees to pay all real estate taxes, building insurance, and maintenance. The tenant is also responsible for all costs associated with the repair and maintenance of common areas. Being a triple-net-lease REIT reduces the risk of unexpected expenditures associated with tax increases and building maintenance.
Conservatism leads to low volatility. Gladstone sports a 0.47 beta, which means it tends to be half as volatile as the overall market. Gladstone shares generally trade within a $17-to-$18 range. There isn’t a lot movement.
But there is a lot of high-yield income, which investors are assured of receiving.
Since 2003, Gladstone has never missed or lowered a scheduled dividend payment. Since adopting monthly payments, in 2005, Gladstone has delivered 119 consecutive monthly payments. Over those years, the payout has been increased four times.
Today, Gladstone pays $0.125 per share each month or $1.50 per share annually. Investors continually receive income that generates an 8%-plus dividend yield year after year. Better yet, they receive this high yield in a low-volatility investment.
— Steve Mauzy[ad#wyatt-income]
Source: Wyatt Investment Research