Something of an oddity on Wall Street, REITs are essentially
companies that pool real estate assets (e.g., apartment/office
buildings, hotels, shopping malls and residential communities) into an
investment that can be purchased by the public. Because they are not
making land anymore, real estate assets on average have appreciated
above the rate of inflation for centuries. Over the past 50 years, real
estate assets have appreciated at an average rate slightly lower than
stocks but much higher than the rate of inflation. Factor in the high
current dividend yield and below-book-value price of many REITs, and you
have a potential investment that could appreciate at a much higher rate
than inflation while paying you almost double the current yield that
long-term U.S. treasury bonds pay.
As an extra bonus, REIT investing
seems to have some smart investors convinced of the potential returns.
Recently, Warren Buffet (stock picker extraordinaire) purchased a
handful of REITs for his own personal portfolio. Historically savvy
investors at Dow Theory Forecasts and the Berger Small Cap Fund have
also taken large positions in about a dozen REITs. REITs that appear
promising to the Rogue Investor include Tanger Factory Outlets (SKT),
Hospitality Property Trust (HPT), Cresent Reality and, for true
gamblers, Meditrust (MT). These companies all sport dividend yields in
excess of 10 percent and are selling near their 52-week lows. Over the
next several years the combined return (dividends and capital
appreciation) of these stocks could exceed 20 percent per year even if
the stock prices only return to historical levels.
