The Ultimate Sleep Well At Night REIT Recipe

EPR is a specialty REIT with a portfolio that includes primarily entertainment, education and recreation properties.

Summary

  • For investors who want income with a stable portfolio value, buying riskier REITs does not accomplish their objectives while preferred stock will often achieve portfolio objectives.
  • For investors whose objectives include income and portfolio stability, REIT preferred shares are well worth considering.
  • The preferreds could add more of a complementary "bond-like" component to the fixed-income portion of your portfolio.
  • Happy Thanksgiving from The Intelligent REIT Investor!

We are often asked by investors how they can manage the volatility of their REIT investments or create a more stable portfolio value while generating above average income.

One of the primary ways investors increase the yield of their REIT portfolio is to lower their quality standards and buy higher yield REITs. (Avoid this Sucker Yield).

We have often advised investors against buying riskier REITs and to consider investing in the preferred stock of higher quality REITs.

For investors who want income with a stable portfolio value, buying riskier REITs does not accomplish their objectives while preferred stock will often achieve portfolio objectives.

Ultimately, an investor can obtain higher yields in the preferred stock of most REITs while experiencing less price volatility. For investors whose objectives include income and portfolio stability, REIT preferred shares are well worth considering.

On average, REIT preferred stock has higher yields than the common stock as preferred investors do not experience the same amount of capital appreciation potential that common stock investors do due to the fact they are not true owners of the REIT and will not receive dividend increases if they are declared.

Remember that the primary objective for preferred shares is income and therefore the intelligent REIT investor should remain focused on the fact that Preferred REIT income is equivalent to bonds (for income); however, they yield more than bonds (but with a similar risk profile). Perhaps a better way to describe preferred stocks is that they could be something like a "bond replacement" strategy.

We often recommend that investors implement a blended strategy of buying both REIT common stock and preferred stock; this way investors can take advantage of any dividend growth and stock appreciation from common stock, while enjoying higher dividend yields from preferred stock.

The preferreds could add more of a complementary "bond-like" component to the fixed-income portion of your portfolio, that’s why we have titled this article, The Ultimate Sleep Well At Night REIT Recipe.

5.75% From This Off-Beat REIT

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