The popularity of real estate investment trusts (REITs) hinges heavily on dividends. Equity (meaning non-mortgage) REITs pay on average of 4.1% in dividends, vs. 1.8% for the S&P 500. Tax rules tend to boost dividend payments for these real estate stocks. If REITs agree to pay out at least 90% of their income in dividends, certain types of income receive an exemption from federal income tax. While such a rule can lead to constant fluctuation in payout amounts, investors often willingly accept this condition in exchange for the higher dividend.
A handful will also pay a dividend that places the yield close to or sometimes above 10%. Stockholders must exercise caution with some of these real estate stocks, as the high payout could mask problems with the stock. For example, CBL & Associates Properties (NYSE:CBL) may tempt some investors with its 14.3% dividend. However, investors will likely find themselves less anxious to buy when they see that troubled retailers such as Sears (NASDAQ:SHLD) and J C Penney Company (NYSE:JCP) anchor 60% of their properties.
While investors need to understand the stocks and exercise caution, they can still find REITs that pay a safe, sustainable, return at or near double-digit dividend yields.
Top Performing Stocks To Watch For 2019: Government Properties Income Trust(GOV)
Dividend Yield: 10.7%
As the name implies, Government Properties Income Trust (NASDAQ:GOV) acquires, manages, and leases office space to government entities. What differentiates GOV from most real estate stocks is that most of their real estate is leased to the federal government. Still, GOV also counts many state governments, municipalities, and international organizations among its clients. Both the growth of government and the expansion of agencies have sustained a continued growth path for longer than anyone can remember. Hence, this REIT should remain among the safer investments.
Investors should buy this stock assuming that most (and possibly all) the income derived from GOV stock will come from the dividend. The stock trades a little bit more than 20% lower than its IPO levels of 2009. Still, it could be well-positioned to bounce back. The stock is well off its 52-week low of $11.87 per share.
At nearly $16 per share, it remains about 35% below the near-term high achieved in 2016. That places its forward price-to-earnings (P/E) ratio at just under 8. Although no profit growth is forecast through 2020, both the P/E and price-to-sales (P/S) ratio trade well below five-year averages.
Moreover, the reduction in price has brought the dividend yield near double-digit levels. The REIT has held its annualized dividend at $1.72 per share since 2013. At current prices, that takes the dividend yield to about 10.9%. With a stable income source, a double-digit yield and the possibility of stock price appreciation, long-term income investors should look at GOV stock.
Top Performing Stocks To Watch For 2019: Amazon.com, Inc.(AMZN)
Amazon is my pick from the services sector. Up 47% YTD compared to 25% for its specialty retail peers, it has managed to deliver an annualized total return of 29% over the past 15 years, making CEO and founder Jeff Bezos one of the better providers of shareholder value.
You’re probably not going to believe this, but picking Amazon as my service-sector pick wasn’t a slam dunk despite the fact I’m a big fan and think Amazon’s long-term goal of selling you everything you need in your home and life is a big home run.
The company’s June 28 announcement that it would pay close to $1 billion to acquire online pharmacy PillPack knocked $11 billion in market cap from the nation’s three leading publicly traded drug store chains’ stocks … in a single day.
The Seattle behemoth has certainly become a company that can move markets. I expect the future to be a bright one for Bezos and company no matter where it chooses to set up its second headquarters. Even a Canadian HQ2 couldn’t slow it down.