Real estate investment trusts (REITs) are an investment instrument that allows individual investors to pool their money to variously finance, buy, and manage commercial and residential properties.
The REITs themselves are obliged to pay out at least 90% of their taxable income to those shareholders as part of the tax-advantaged bargain. There are more than 225 of these companies that are traded publicly, and they span the spectrum of industries while offering the potential of capital appreciation along with reliable income.
That’s the idea, anyway. Of course, their stock prices can plummet and they can suspend dividends -- that happened to many a retail REIT during the first year of the pandemic, for instance -- and they can rally strongly when their part of the real estate market is in favor.
Below, we offer a high-line look at three REITs that merit consideration for a long-term place in your investment portfolio. Full disclosure: One’s not actually a REIT.
Global Medical REIT
Global Medical REIT (NYSE: GMRE) is a net lease operation that buys specialized healthcare facilities and leases them to healthcare systems and physician groups that have strong share in their individual markets.
According to its June 2021 investor presentation, this Bethesda, Maryland-based healthcare REIT owned 145 buildings with 117 tenants across 31 states, with weighted average rent escalations of 2.1% and average lease terms of 7.9 years.
Global Medical stock was yielding 5.16% based on annual dividends of $0.82 and a share price of $15.79 on Sept. 3, just off its 52-week high of $15.98 from June 15. The company has been paying $0.205 a share for the past two quarters, a slight bump from the $0.200 a share it had been forking over every quarter since September 2016. That current payout ratio, by the way, is 93.18% of trailing 12 months of earnings. That’s relatively high, but if you have confidence in the income flow, no problem.
VICI Properties (NYSE: VICI) is a hospitality REIT that’s one of the largest owners of casinos in the country, including Las Vegas icons Caesars Palace and Harrah’s.
New York-based VICI Properties has a portfolio of 28 gaming facilities, about 17,800 hotel rooms, more than 200 restaurants, bars, nightclubs, and sportsbooks. And four championship golf courses. Plus, it’s about to add MGM Resorts and its Las Vegas and regional destination properties in a $17.2 billion all-stock deal announced in August.
VICI Properties stock was yielding 4.55% after declaring a quarterly dividend of $0.36 that followed four quarters at $0.33 per share and three years of consecutive payout growth since it began paying quarterly dividends in June 2018. The stock was trading at $31.60 per share mid-morning on Sept. 3. That was 5.25% below its 52-week high of $33.35 on June 9. Its payout ratio is 80.49% based on trailing 12 months of earnings.
Vanguard Real Estate ETF
Vanguard Real Estate ETF (NYSE: VNQ) is not a REIT. But it owns a lot of them. It’s an $81 billion exchange-traded fund that aims to provide income and moderate long-term capital appreciation by tracking the MSCI US Investable Market Real Estate 25/50 Index of publicly traded REITs and other real estate-related investments.
Like Vanguard funds in general, this is a low-cost way to put money into a sector in an efficient and diversified way. The fund tracks its index quite closely, and in this case that’s good news. VNQ has posted a one-year market price return of 37.63%, helping to juice its 10-year average annual return up to 10.89%.
VNQ shares were trading at $109.95 midday on Sept. 3, good for a yield of 2.24% based on an annual dividend of $3.18. Because a computer pretty much decides the dividend, rather than human board members, the payout varies widely. This is for the past six quarters, from the most recent: $0.729, $0.526, $1.338, $0.59, $0.759, and $0.648.
The Millionacres bottom line
Global Medical REIT and VICI Properties are good examples of the range of commercial real estate in which REITs can profitably specialize while their investors diversify, and Vanguard Real Estate ETF is classic index investing brought to real estate stocks. All three merit a place in a balanced portfolio with a focus on income and growth.