REITs, known for their consistent payouts and income potential, present an intriguing option for investors seeking alternatives to conventional Dividend Kings and Aristocrats. With mandated dividends reaching up to 90% of taxable income, REITs offer enticing double-digit yields. However, investors must consider various factors, including macroeconomic conditions, market volatility, and interest rate fluctuations, which significantly impact REIT performance.
Choosing the Right REITs
Selecting the ideal REITs involves thorough research and consideration beyond just dividend yields. Factors such as analyst ratings and fundamental metrics play crucial roles in identifying promising investment opportunities.
My Selection Process
Utilizing personalized watch lists from Barchart.com, I filtered REITs based on two primary criteria: annual dividend yields and analyst ratings. By prioritizing high dividend yields and strong analyst endorsements, I identified the following top three REITs:
Key Considerations for REITs
REITs differ substantially from traditional companies, particularly in their distribution of earnings. When evaluating REITs, assessing metrics like book value per share (BVPS) and adjusted funds from operations (AFFO) is essential. BVPS reflects the company’s worth per share after accounting for assets and liabilities, while AFFO indicates its ability to sustain dividend payments.
CTO Realty Growth
Focused on retail properties across the United States, CTO Realty Growth (NYSE:CTO) boasts an impressive portfolio of 3.7 million square feet. With an annualized dividend yield of 8.97% and FY’24 AFFO guidance exceeding its dividend payout, CTO presents a compelling investment opportunity.
Redwood Trust
Redwood Trust (NYSE:RWT) operates as a diversified specialty finance company, offering residential credit and mortgage solutions. Despite a slight decline in GAAP book value per share, Redwood Trust maintains a robust annualized dividend yield of 10.05%, supported by a strong buy recommendation from analysts.
Cherry Hill Mortgage Investment
Cherry Hill Mortgage Investment Corp (NYSE:CHMI) focuses on residential real estate investments in the US, including mortgage servicing rights and residential mortgage-backed securities. Despite fluctuations in dividend rates, CHMI offers an attractive forward dividend yield of 17.14% and garners a strong buy rating from B.Riley Security.
Final Considerations
While REITs can enhance income portfolios and exhibit lower volatility compared to stocks, investors must carefully evaluate market conditions and their investment objectives before committing to long-term holdings. REITs’ susceptibility to external factors underscores the importance of strategic portfolio diversification and risk management.
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