- While REITs have been proven through interest rate, economic and business cycles, some investors are concerned about volatility and valuation.
- This concern does not preclude investors from being involved in this resilient sector – it merely warrants a look at another slice of the capital stack.
- Six ideas with yields over six percent.
Lately I have heard from many subscribers and readers that the volatility and pressure on the REIT market due to changes in interest rates is making it more difficult to commit capital to the sector.
While I believe that REITs will ultimately benefit from increased rates (or, better put, the reasons rates are rising such as expected inflationary pressures and the potential for increased growth), I believe in providing options or alternatives to investors that want exposure to REITs but want to limit volatility in their portfolio.
I have often said that REITs are, generally, SWAN companies due to their ability to weather economic, business and financial cycles. Part of this ability stems from their broad capital structure and the alternatives which the diverse capital structure provides to investors.
To this end, I thought it might be helpful to provide REIT investors an alternative to the common equity of these firms – especially if they want exposure but are concerned about volatility and valuations. As you may have guessed, I am referring to preferred stocks. For investors who are worried about valuations and volatility but desire income, preferred stocks provide a viable and attractive opportunity.
I have come up with a list of “six above six” preferred stocks, or six securities that have yields greater than six percent. Importantly, these are preferred stocks of REITs that I currently recommend and am comfortable owning the equity. The only exception to this is Bluerock Residential (BRG), where I have – and continue to – recommend the preferred instead of the equity.
While my subscribers and readers are familiar with these REITs, for those unfamiliar I will start with a brief description of the REITs included.