What A Fool Believes: Should You Buy This High-Paying Net Lease REIT?

Lexington Realty Trust (LXP) was founded in 1973 and went public in 1993 (24 years ago). While the majority of the company's properties are free-standing buildings, a few of the buildings (3.8% of ABR) are multi-tenant. It owns a diversified portfolio of 188 properties across 40 U.S. states.

Summary

  • I am amazed to see so many investors who own shares in a REIT simply because of the enticing yield.
  • These yield chasers are like cowboys slinging high-flyers like the “wild, wild, west.”.
  • Predicting short-term stock market direction is just a fool’s game.
  • I may be “old school” but I’m not buying the high-flyers.

For most Net Lease REIT investors, the most important motives for buying shares is for dividend safety. After all, these companies own buildings with long-term lease contracts that generate very stable and predictable dividend income.

As part of the “bond-like” exposure in a REIT portfolio, Net Lease REITs offer the least volatile and most durable components that I deem the foundation for a Durable Income Portfolio.

In fact, it’s no surprise that my Durable Income Portfolio has returned close to 10% year-to-date as many of the REITs I own are considered Net Lease REITs – either retail or healthcare.

But part of the success I have enjoyed over the years is not simply that I have engineered an over-weight basket of bond look-a-likes, but instead that I have developed a strategy aimed to generate both stable dividends and steady share price appreciation.

I am amazed to see so many investors who own shares in a REIT simply because of the enticing yield, without any consideration as to whether the principal is safe. Thanks in large part to the internet, stock writers are consistently pumping yield 24-7 without providing any fact-based analysis as to whether the stock is safe or whether the dividend is sustainable.

I hate to say this, but Seeking Alpha has also become a reckless site for encouraging writers to chase yield, without articulating the potential risk of losing capital.

Almost daily I am seeing articles on Uniti (UNIT) and one of the most ridiculous titles I have seen is Uniti: Priced for Bankruptcy.

It’s true, these yield chasers are like cowboys slinging high-flyers like the “wild, wild, west,” hoping to gain followers and cash in on the lottery.

Let me be clear, I am not trying to debunk a writer for taking a position in a speculative stock. But I am quarrelling that these writers should recognize the stock for the risks, and not just the page-pimping returns.

Quite simply, market timing is dangerous, and following the principles of value investing, if stocks are cheap, you buy them. Predicting short-term stock market direction is just a fool’s game, and my goal here on Seeking Alpha is to cut through noise and provide investors with a responsible, fact-based analysis without sacrificing credibility.

This is my first in a series of “What a Fool Believes”...tell me what you think…

A Unique Player In The Net Lease REIT Space

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