Real estate is one of the greatest wealth-building asset classes out there.
And real estate investment trusts (REITs) have made it easy for everyday investors to build their own stakes in the sector. Plus, many come with sizable dividends.
But with more than 200 REITs available on the major stock exchanges… and commercial real estate struggling right now… how do you know which ones to invest in?
That’s what I’m going to show you in today’s Buy This, Not That video.
I highlight several REITs with monster dividend yields… that you should stay FAR away from.
And then show you two strong buys…
One is a global leader in personal storage… and the other is a Dividend Aristocrat that’s delivered 640 consecutive dividend payouts.
Get all the details in today’s video.
Transcript
Hey, everybody. Shah Gilani here with your weekly BTNT – Buy This, Not That. A lot of you have been asking me about real estate. A lot of you have been asking me about REITs. A lot of you have been asking me what you should do with real estate and REITs… because if rates are coming down, some of these that have high yields… are they going to be investments you want to buy right now? Some of them have really high yields. So let’s take it from the top.
First up, a lot of you asked me about Global Net Lease, symbol GNL. Now, Global Net Lease is all about sale, lease back, net lease deals, all that stuff. It’s got a pretty decent portfolio. But they’re losing money, people. So what’s attractive about them for a lot of folks is they look like they’re on sale. They’re down from the twenties to about, we’ll call it close to a little bit below nine bucks, around $8.80, thereabouts. So people think, “Oh, this looks really good.” And because the prices come down, the yield has gone up. The yield on this… the trailing dividend yield is 17.9%. Let’s call it 18%.
People, if it sounds too good to be true, it is too good to be true. That’s why the stock has collapsed. They can’t afford to pay that dividend yield. Something’s going to break, and it’s been the stock breaking. And I don’t think the stock is going to rebound anytime soon because they’re losing money.
How do you have a REIT that’s doing triple net lease that loses money? Something is really far wrong. Oh, it could be their debt load. Got $156 million in cash, $5.12 billion in debt. Profit margin is -44%. Stay away from this. Don’t be sucked into the yield, thinking you want to lock in a yield as rates are coming down. Ooh, and commercial real estate, any kind of real estate might be in the turnaround mode here. Don’t go there. GNL, Global Net Lease… not.
Next up is Office Properties Income Trust, symbol OPI. Okay, I think OPI might be short for “opium” here because if you think this is worth a buy down here, you got to be smoking something. The answer is not. OPI, yeah, again, pretty decent diversified portfolio… 20.7 million square feet of mostly office space, mixed use and office. Not my favorite mix, especially the office side of it.
This is managed by RMR Group. That’s another stock for another story. They’re a private equity kind of alternative investment, kind of “do everything” kind of thing, including managing a bunch of REITs and real estate properties, and they’re out for themselves. So as far as OPI goes… It’s sitting on $24 million in cash, $2.57 billion in debt, negative five profit margin – minus. So yes, people, they look really attractive.
So I guess it was all about the yield you’re asking me about. The yield here, a 21%, trailing dividend yield, 21% at a price down here. And OPI is trading at $5.91 right now. So yes, it looks fantastic with that kind of yield. “Oh my gosh, it’s come down. This could pop, and it could be…” No, don’t touch it, people. It’s an accident waiting to happen. It’s already happened. If you own the stock, you’ve already gotten hammered on it. If you want to bottom-fish down here, good luck with that. The only thing that it’s got going for it is 15% short of flow. That’s the only good thing that this one has going for. So as far as OPI… Stick with opium, you’re better off. Not.
Next up, Services Property Trust. This is the hotels and retail, net lease commercial real estate, REIT. Okay, again, this one is also managed by RMR Group. Yes, and RMR is their stock symbol. You’re better off looking at RMR Group than any of these REITs that they manage because they’re sucking the life out of them. Yes, that’s what I said.
So as far as Services Property Trust… It’s trading around $7.90. It’s down from $25, $26. Now, the stock’s gone nowhere but down, and it’s got a 10.27% dividend yield, which looks good because it’s not 21%. And, you think, “Well, that’s actually reasonable,” or “We can pay that.” Yeah, they can, but guess what?
They’re really losing money, got a small negative profit margin here. So how are they going to pay that without borrowing remains to be seen. This is about collecting fees for RMR. So don’t jump into SVC, Services Property Trust, because you think it’s got a decent 10.25% trailing dividend yield. Because it’s not cheap just because it’s come down from $25, $26 to $7.90 and change. It’s not cheap. Are you ready for this? Trailing P/E is 640. It’s a REIT, people. So not.
Next up, Public Storage, symbol PSA. I like the public storage space. I like PSA’s story. I think they’re a well-run REIT, one of the few that I think is worth a buy down here. Got a 4% dividend yield. So yeah, I think you can buy a PSA down here. I think PSA… it’s down about almost 9.5% on the year. So there’s room for it to gather some… I would say consolidate here and gather itself… and it’s trying to move higher. So it’s up a little bit already. Everything had a nice pop because as rates looked like they were coming down… talking about the Fed cut… a lot of these real estate plays, a lot of these REITs that have locked in yields, they started to rally.
So yeah, 4% trailing dividend yield… not bad, not great. You can get 4% in the money market, but I think you have some appreciation potential with PSA. So yeah, I think it’s a buy. Outside, I think this stock can go up 50% in one to two years. So even if it’s two years, you got a 25% annualized return, plus you got 4% dividends, so you’re close to 30% if it works out that way for you. This is I think worth the buy down here, and if rates continue to come down, I think PSA can hang on and do pretty reasonably well and move higher. But put a 10%, 15% stop on it because we’re not out of the woods as far as the rates go yet.
Next up, Realty Income Corporation, stock symbol O. Ah, yes, everyone knows Realty Income because it is the Dividend Aristocrat in the REIT universe. Huge company… 13,250 real estate properties, people, owned under long-term leases. So very well run, pretty decent dividend yield at 5.58%. I like O down here.
I like the fact that it’s a solid dividend payer… 640 consecutive dividend payments. 640 consecutive payments. Since 1994, they have raised their dividend 122 times, and you still have 5.58%. Yeah, you know what? That’s better than you can get in the money market right now. So I like that. I like a little potential here for O to continue to go higher. It’s bounced off its lows. It’s up 9.5% in the last 30 days. So, yes, it has started to pick itself up, and I think it can move higher.
I think it can go to the… I think, well first of all, it’s trading in the mid-fifties. So I like the fact that you can buy it here, and it’s trading at $54.85 right now. The lowest recently is $45. So you can put a stop in at $44, let’s say, and then you’d be comfortable trying to ride O higher. I think we can get to $80 in a good day here. So this has potential to go higher, and you’re collecting a nice dividend. So I like Realty Income Trust, O, here. One of the few REITs that I like here because it is a good, solid dividend payer.
Last but not least, I’m going to go with Welltower, symbol WELL, not “towers” as you would think. We’re thinking wellness. So Welltower is a healthcare REIT, so think of senior centers, think of post-acute care, think of outpatient facilities. They’re hugely diversified, well run… but it’s had a heck of a move up already, people.
So it’s trading around $88.60. It’s up 35% in the last 52 weeks. So it’s had the move that everybody would like to have seen it happen. So if you didn’t buy it and you don’t own it, I would not chase it here. Why? Because, it just doesn’t cut it for me. Because the yield, the trailing dividend yield is 2.77% at this price. So Welltower, WELL, there are better places to put your money. I don’t see a lot of appreciation potential here… and certainly being paid 2.77% when you can get 4% in the money market doesn’t make sense.
So there you go for your REITs today, for your commercial real estates, your healthcare REITs. There’s a bunch of commercial stuff out there, people. There are still problems in real estate. Yes, rates have come down. Commercial real estate is an accident waiting to happen. In particular, the office space, people.
We have not seen the worst of it. Yes, a lot of office property businesses, a lot of real estate businesses, have popped because rates have come down, and everyone’s gotten really optimistic. “Oh, the bottom’s in.” No, the bottom is not in. This is just a nice dead cat bounce for certain aspects of commercial real estate, in particular office space stuff. It’s not going to get better because rates aren’t going to come down fast enough to solve the problems, the refinancing problems that are going to start to happen in 2024. So there’s going to be money made in the downside on that one, people, so keep an eye here because I’m going to tell you where to go with that.
— Shah Gilani
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Source: Total Wealth Research