Big REIT Dividends

By Investopedia | August 03, 2010 AAA

Low interest rate levels are pushing income-generating fixed income securities, such as government bonds and GICs, out of favor with many investors. Dividend-paying stocks offer an ideal alternative, as payouts are independent on interest rates. As the market continues to fluctuate, with many analysts predicting a double dip recession while others contending that the fundamentals signal an upcoming bull swing, a regular revenue stream removes some of the uncertainty and market noise associated with investing.

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Quick Case for REITs
Because of their favorable tax treatment, real estate investment trusts (REITS) are required to pay a substantial portion of earnings as dividends, either in the form of cash or stock. These trusts typically invest in income-generating properties, raise capital through borrowing and sell assets in order to generate the necessary cash flow to be dispersed.

The table below provides the dividends yields of some of the REITs that produce significant and attractive payouts.

REIT Dividends Yield (%)
Bradywine Realty Trust (NYSE:BDN) 5.10
CBL & Associate Properties (NYSE:CBL) 5.50
Mack-Cali Realty Corporation (NYSE:CLI) 5.40
Health Care REIT (NYSE:HCN) 5.90
HCP, Inc (NYSE:HCP) 5.10
Lexington Realty Trust (NYSE:LXP) 6.00
Senior Housing Property Trust (NYSE:SNH) 6.20

Earnings Announcements
Lexington Realty Trust recently reported its second-quarter results. The REIT generated $35.9 million in funds from operations (FFO), or 23 cents per share. These results showed a decline over comparable 2009 levels. the company's real estate assets, measured at cost, also showed a marginal decrease of 3.7%. The strategy of management is to sell "non-core properties particularly on multi-tenant properties in order to create additional liquidity and focus on portfolio strategy on our core single-tenant offers in industrial property."

Senior Housing Property Trust also recently made a quarterly earnings announcement. Funds from operations, a standard REIT metric, showed an increase from 52.8 million to 53.3 million. However, on a per share basis decreased to 42 cents from 44 cents. Net income per share and funds from operations per share fell, Moody's upgraded SNH senior unsecured notes to investment grade.

The Bottom Line
Despite the less-than-stellar performance of Lexington Realty Trust and Senior Housing Properties, these, and other REITs, remain solid investments. The housing bust has undoubtedly led to weaker real estate spending. Yet, the potential for future growth opportunities, in addition to the lucrative dividends, real estate investment trusts continue to outperform the market. In the second quarter, for example, when the S&P fell by 11%, REITs lost only 4.3% of their value.

Other positive reports in the sector, by such large trusts as Equity Residential (NYSE:EQR), should provide some optimism for investors. Although, most bullish signals are concentrated on the apartment rather than the commercial sector - spill over effects will bode well for the entire industry. The high yields which REITs offer, in addition to possible capital appreciation, make very attractive investment opportunities. (Check out more stock analysis at Nuclear Energy Of The Future.)

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