Best strategies for retirees in real-time real estate investment trust

Best strategies for retirees in real-time real estate investment trust
Published on Jun 8, 2020,07:00 am by Brad Thomas for

The “sacred” state of retirement is supposed to mean living the life.

It’s supposed to be easy streets.

It’s supposed to involve enjoying your golden years.

No doubt, that’s the vision, anyway. It’s the dream you held to during work days that never seemed to end: rivaling those cruise ads where the grandparents are splashing in the waves with the grandkids, smiling and laughing in the bluest of waters while a big, white boat sits on the calm ocean about half a mile out.

Of course, in order to reach that big, bright, beautiful picture, you had to plan for it. You had to work hard.

And even now, you can’t completely kick back and relax. In order to maintain that big, bright, beautiful picture, you have to plan for it some more.

Things are always coming up to try to trip us up. If it isn’t the financial crisis, it’s the pandemic-inspired shutdowns.

I’ll be the first to admit that the shutdowns shook portfolios up everywhere. Retirees, pre-retirees, and those far, far from it took major hits to their portfolios this year, starting in February.

The drop the markets experienced across the board was enormous, with people seemingly dumping any and every stock they held.

Normally, when that kind of thing happens, it’s easy to label those actions as foolish. This time though?

How do you blame people for expecting an apocalypse when we were being told up to 200,000 Americans were going to die… the whole entire country was being shut down… and nobody had any idea what to expect because nothing like this had ever been done before?

I’m not going to cast the first stone.

But I am going to take advantage of the situation. And so can you.

REITs Are Terrific Stocks

On July 9, 2018 – far, far before anyone ever thought a global shutdown was possible… before anyone ever thought of a global shutdown at all – I wrote a Forbes piece titled “4 REITs for Retirement.” In it, I wrote that real estate investment trusts, or REITs:

“are terrific stocks for retirees and pre-retirees (and those in-between…) because they’re high-yielding securities. They are unique to stocks because REITs must [pay out] at least 90 percent of their taxable income. So the yields are oftentimes higher than other equity classes.

“Also, because REITs own real estate, buildings are often leased to very stable companies under long-term lease contracts, which make income more predictable and consistent. Since REITs hold valuable assets, dividends getting generated usually grow, just like an apartment building that increases rents every year. And as REITs also grow earnings, that makes for an even more enticing ‘compounding effect.’”

So much has changed since then, I know. And it’s true that some REITs of yesteryear won’t be here tomorrow. That could include mall REIT CBL & Associates.

On Friday CNBC reported how the company “said Friday that its ability to continue as a going concern is in doubt after the retailers in its properties… skipped rent payments during the Covid-19 crisis, forcing CBL to miss its own interest payments.”

Worse yet:

“This means its lenders now have the option to accelerate the maturity of its debt, the company said.

“CBL said it has hired advisors Weil, Gotshal & Manges and Moelis & Co. MC to explore alternatives, which could entail a reorganization of the company.

“If CBL were to file for bankruptcy protection, this would mark the first filing by a commercial real estate owner during the pandemic.”

That would be bad. Obviously.

But that doesn’t negate the retirement support the larger sector stands for.

REITs Still Work for Retirees

There are still plenty of REITs out there with solid fundamentals and strong support for their dividend payments.

The markets rose intensely on Friday thanks to surprising jobs reports. But many REITs are still discounted… which means you can take advantage of very, very likely price appreciation on top of continuing dividends.

In other words, when you pick the right REITs right now – and again, they are most definitely out there – you can:

1.      Buy in on the cheap

2.      Watch those shares rise as the economy improves

3.      Get paid quarterly or monthly payouts both as it happens and after the fact.

Those payouts can pad your Social Security checks and/or other forms of income, smoothing out your retirement. That way, the next time a financial tragedy hits (and it will, because it always does) you’re a lot better prepared.

Not to mention how much more you can enjoy yourself in the meantime.

2 Favorite Retirement REITs That Pay Monthly

Realty Income O (O) is a Net Lease REIT that has paid and increased dividends for over 26 years in a row. It’s because of the company’s long history of success and dividend security that gives defensive investors more confidence than most.

The company’s portfolio isn't perfect (in terms of its COVID-19/social distancing viability), it has significant exposure to movie theaters, gyms, and casual dining, and childcare, none of which have performed particularly well in recent months.

However, there’s ample cash flow being generated from the other tenants that helps me sleep well at night. Realty Income said that during April it collected 99.5 percent of its rent from its top four industries and 99.9 percent of rent from its investment grade tenants.  

Shares are now yielding 4.7 percent and while not the value we saw a few weeks ago, we maintain a Buy rating.

Another monthly payer we like is STAG Industrial (STAG), an industrial REIT that is one of the highest dividend yields among its peers. And while its payout ratio is on the higher side, it’s not so high that we’re increasingly worried about sustainability (payout ratio is ~80% based on FFO).

It’s worth noting that STAG isn’t a very fast dividend grower. Its most recent increase was just 0.7 percent, and the company has managed to grow its dividend for nine years in a row (since it went public in 2011).

STAG has a diversified portfolio with 450 buildings (over 91.4 million square feet of space) and an overall portfolio occupancy ratio of 95 percent. Shares are now yielding 5.1 percent and we maintain a safe Buy.

I own shares in O and STAG.