Reits: Recession-Proof Investment?

Real estate investment trusts (REITs) are companies that own and operate income-producing real estate. They are known to be stable securities, and their high-yield dividend growth can make them an attractive investment during a recession. While REITs may underperform private real estate in the lead-up to a recession, they have historically outperformed during and after economic downturns. This makes them a potentially smart investment in times of economic uncertainty.

REITs provide a more diverse investment portfolio

Real estate investment trusts (REITs) are a great way to diversify your investment portfolio. They are a distinct asset class with demonstrated low-to-moderate correlation with other sectors of the stock market, as well as bonds and other assets.

REITs are companies that own or finance income-producing real estate across a range of property sectors. They are traded on major stock exchanges and offer an excellent opportunity for the general public to invest in commercial real estate.

REITs can be a good option for investors looking to reduce risk and increase long-term returns. They are known for their high-yield dividend growth, with REITs required to pay out 90% of their income to shareholders, typically paying higher cash dividends than common equities. This provides an immediate return for investors, with the potential for upside from real estate appreciation.

The diverse nature of REITs is another advantage. They can invest in a variety of properties, including buildings, shopping centres, hotels, warehouses, and mortgages. These assets are traded in a liquid market, making it easy for investors to buy and sell.

In addition, REITs have historically been one of the best-performing asset classes. Over a 25-year period ending in March 2024, the FTSE NAREIT Equity REIT Index returned 9.63%, compared to 7.78% for the S&P 500 and 8.37% for the Russell 2000.

Overall, REITs provide investors with a more diverse investment portfolio, helping to reduce risk and increase returns, especially during volatile market conditions.

REITs have high-yield dividend growth

Real Estate Investment Trusts (REITs) are required to pay out 90% of their income to shareholders, which typically means higher cash dividends than common equities. This characteristic makes them attractive to investors seeking high-yield dividend growth.

REITs are companies that own, operate, or finance income-generating real estate properties. They are traded on major stock exchanges and offer benefits such as liquidity, growth potential, and steady dividend income.

Barry Oxford, managing director at D.A. Davidson & Co., notes that REITs as long-term investments typically carry an average dividend yield of 4 to 5%. This provides investors with an immediate return, and there is also the potential for upside from real estate appreciation.

Some examples of high-yielding REITs include:

• AGNC Investment Corp. (AGNC)
• Apple Hospitality REIT Inc. (APLE)
• Realty Income Corp. (O)
• EPR Properties (EPR)
• Blackstone Mortgage Trust (BXMT)
• Orchid Island Capital Inc. (ORC)

However, it is important to note that high-yield securities also come with higher risks. Investors should carefully assess the fundamentals, such as dividend safety, valuation, management, balance sheet health, and growth prospects, before investing.

REITs are stable securities

Real estate investment trusts (REITs) are stable securities that provide investors with a steady income stream. They are companies that own, operate, or finance income-producing properties, and they are required to pay out 90% of their income to shareholders. This makes them an attractive option for investors seeking stable, high-yield dividend growth.

REITs have historically delivered competitive total returns, and their low correlation with other assets makes them an excellent portfolio diversifier. They are also highly liquid, as they are publicly traded on major stock exchanges, allowing investors to buy and sell them easily.

While REITs are impacted by economic downturns, they have proven to be resilient during recessions. An analysis of the last six recessions showed that REITs outperformed private real estate during and after recessions. This is because REITs tend to have strong fundamentals, such as tight supply and subsequent healthy cash flows, which help them weather economic storms.

Additionally, REITs have historically performed well in specific environments, such as when both growth and real yields are down, during the end of a rate-hiking cycle, and during the transition to an early cycle environment. Their performance is also positively impacted when the Federal Reserve stops raising interest rates.

In summary, REITs are stable securities that provide investors with a steady income, high-yield dividends, and portfolio diversification. Their strong fundamentals and ability to perform well in specific economic conditions make them a resilient investment choice, even during recessions.

REITs are well-positioned for growth during a recession

Real Estate Investment Trusts, or REITs, are well-positioned for growth during a recession for several reasons. Firstly, they are known to be stable securities, even during a bear market setback. While the REIT industry was impacted by the pandemic, with a 9% decline in US REIT earnings in the first quarter of 2020 compared to the previous quarter, certain REIT sectors proved more resilient than others.

REITs provide investors with a more diverse investment portfolio and reduced risk. They can purchase shares in a variety of assets, such as buildings, shopping centres, hotels, warehouses, and mortgages, which can be easily bought and sold in a liquid market.

REITs are also characterised by their high-yield dividend growth. They are required to pay out 90% of their income to shareholders, typically resulting in higher cash dividends than common equities. This makes them attractive to investors seeking yield, especially in a low-interest-rate environment.

During the pandemic, REITs with warehouse holdings were well-positioned for growth, benefiting from the increase in e-commerce and the resulting demand for inventory storage space.

Historically, REITs have outperformed private real estate during and after recessions. An analysis of the last six recessions showed that, on average, REITs outperformed private real estate during and in the four quarters following a recession. This trend is expected to continue, with REITs likely to take advantage of economic recoveries.

In summary, REITs' stability, diversification benefits, high-yield dividends, and ability to capitalise on economic recoveries make them well-positioned for growth during a recession.

REITs are a good investment during economic uncertainty

Real Estate Investment Trusts (REITs) are a good investment during economic uncertainty. They are known to be stable securities, and their comparatively low correlation with other assets makes them an excellent portfolio diversifier. They can help reduce overall portfolio risk and increase returns.

REITs have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. They are also a good option for investors looking for a more diverse investment portfolio and reduced risk. This is because investors can purchase a variety of shares in buildings, shopping centres, hotels, warehouses, and mortgages, to name a few. These assets are traded in a liquid market, which means they can be bought and sold easily, like stocks.

REITs are also well-positioned for economic uncertainty because of their strong balance sheets. They are entering this period of slower economic growth with strong operational performance, near-historical lows of leverage, and well-termed, mostly fixed-rate debt and very low current interest expense.

REITs have historically outperformed private real estate and the broader stock market during and after recessions. They are also considered yield-based securities, and their tax breaks result in regular distribution of dividend income to shareholders.

Additionally, REITs offer exposure to global markets, allowing investors to take advantage of real estate markets in foreign nations. For example, if the US real estate market declines due to higher interest rates, an investor with exposure to the Singapore real estate market can benefit from holding REITs in Singapore.

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