Buy High Yield REITs to Profit from "The Rental Generation"
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It used the be that "The American Dream" was home ownership.
After the crash in the real estate market during The Great Recession, however, emerging from the brick and mortar rubble has been the "The Rental Generation," according to a recent article in Bloomberg Businessweek. Real estate investment trusts ("REIT") positioned to profit from this development will reward investors with both a high dividend income and strong total return.
REITs, as defined by The Motley Fool, "are a specialized form of equity that allow investors to own a portion of a group of real estate properties...Granted special tax status by the Internal Revenue Service, REITs pay out at least 90% of their earnings in the form of dividends to shareholders." REITs cover virtually every sector of the real estate market. To profit from the real estate demands and needs of The Rental Generation, investors should look at those that specialize in apartment communities and public storage facilities.
Mid-American Community Properties (NYSE: MAA), United Dominion Realty (NYSE: UDR) and Apartment Investment & Management (NYSE: AIV) are REITS that acquire, manage and redevelop apartment communities. With The Rental Generation looking to lease homes, rather than purchase a house or condominium, these REITs will gain from this sentiment surging.
While the average dividend for a member of the Standard & Poor's 500 Index is around 2%, Apartment Investment & Management, United Dominion Realty and Mid-American Community Properties all offer yields at least 50% greater. For Mid-American Community Properties, the dividend yield is 3.03%. United Dominion Realty provides dividend income at the rate of 3.51% for its shareholders. For Mid-American Community Properties, the dividend payment registers at 3.90%.
In addition to the high dividend yield, Mid-American Community Properties has earnings-per-share growth increasing quarterly by 111.42% with a profit margin of 11.30%. United Dominion Realty has earnings-per-share growth rising by 25.63% on a quarterly basis. On a quarterly standard, Apartment Investment & Management has both sales and earnings-per-share growth improving, too.
In renting rather than owning, there is a greater need for storage facilities. Many times it is cheaper to store items rather than move them. Often times the apartment just isn't big enough to hold all of possessions a renter wants to keep. This results in REITS such as Extra Space Storage (NYSE: EXR) and Public Storage (NYSE: PSA) being very attractive to investors looking for high dividend income and capital gains.
Over the last year of market action, Public Storage is up by 29.57%. The storage REIT pays a dividend of 3.03%. The Rental Generation has made Public Storage a very lucrative operation, as its profit margin is 45.48%.
It is much the same story for Extra Space Storage. The profit margin for Extra Space Storage is a robust 22.86%. At 2.38%, the dividend yield is healthy, too.
The greatest profits are made by those who benefit from major transformations in societies. This was the mode of investing favored by one of the best ever, Sir John Templeton, whom Money magazine labeled in 1999 "arguably the greatest global stock picker of the century." As a very apposite example of this, those who shorted real estate stocks during The Great Recession did very well. Conversely, those who invest in REITS that gain from the fundamental disinterest of those members of The Rental Generation in owning a home will profit very handsomely, too.
Even if more decide to purchase homes again, REITs that specialize in apartment communities and storage facilities will still do well. When homeownership was at its peak in the United States, about one-third of the population did not own their own residences. There will always be a need for storage facilities as the United States is a very transient nation with about 15 percent of the populace moving on an annual basis. Those are the societal forces that result in profits like those earned by Sir John Templeton.
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