3 REITs To Dump Now
REITs have been a hot sector in a volatile stock market. With share prices soaring in January, upcoming yields on these three stocks will be driven down greatly impacting every income investor owner. Now is the time to sell these stocks, take your gains, and reinvest elsewhere in the market where the yields are more attractive.
Consider these numbers. A U.S. REIT index is up 39% in the last year. Since a mid-September small pullback, REITs have gained 20%. And in the month of January, REITs as a group are up 9%. These gains are great if you own REITs, but higher share prices means yields have dropped, and if you are an income focused investor it may be time to take some profits out of your top REIT gains and reinvest the proceeds to generate a higher level of cash income.
Healthcare REIT Ventas, Inc. (NYSE: VTR) has been a portfolio holding in The Dividend Hunter since May. Ventas is a great company, possibly the best run healthcare REIT. My concern with VTR is not about the company, but with the valuation.
Since mid-September, just after the third quarter dividend was paid, the VTR share price has increased by 30%. In mid-September the stock carried a 4.8% yield. Now, even with an 8% dividend increase in December, VTR yields just 3.9%. At this low yield, the risk of a drop in share price is significantly greater than the potential for continued share price gains.
My recommendation to my subscribers to The Dividend Hunter was to sell VTR and reinvest the proceeds into another high quality, dividend growth stock with a higher current yield. The new stock recommendation in the newsletter yields 4.5%, but by taking the big share price gains on VTR and reinvesting that cash into the higher yielding stock, subscribers will see a 22% increase in dividend income in 2015. The replacement stock also will grow dividends at a faster rate.
Here are a couple more popular REITs that have seen yields driven down by rapidly increasing stock prices.
Realty Income Corp (NYSE: O) is a very nice monthly income stock when the yield is over 5.25%, as it was in September 2014. Now the share price is 33% higher and the yield is down to 4.15%.
Health Care REIT, Inc. (NYSE: HCN) is a large-cap healthcare REIT competitor to Ventas, Inc. Since September, the HCN share price has gained 32% and the yield has fallen from 5.1% down to 3.8%.
If you want to boost your dividend cash flow income, here are a couple of competitor REITs that have similar dividend growth profiles but still carry higher yields. The goal for this “sell one, buy a higher yield strategy” is to produce an immediate cash flow increase to your account.
Omega Healthcare Investors Inc. (NYSE: OHI) also has had a nice share price run-up, but still yields 4.75%. OHI has a steady track record if increasing its dividend by one cent every quarter.
W.P. Carey Inc. (NYSE: WPC)is a triple-net lease REIT like Realty Income. WPC has been increasing its dividend every quarter, and the payout has grown by 9% over the last year. WPC currently yields 5.25%.
I understand that if you have owned one of these stocks for many years, there are other reasons – such as capital gains taxes – to hang on to your shares. However, you may be able to boost your income even after paying capital gains taxes. Check the math to make sure you are not losing out on a nice income boost by making some swaps in your REIT holdings, selling the high recent growth shares and reinvesting for a higher yield.
Disclosure: I currently do not have positions in the stocks discussed here. I hold positions in several high yield MLPs as part of the more