Any income portfolio worth its salt is invested in real estate investment trusts (REITs).
Real estate has been a preferred asset class of the upper crust since man settled down and established roots thousands of years ago. But we don’t all have hundreds of thousands of dollars to buy up investment properties.
These investment vehicles offer an easy way to invest in real estate without having to field phone calls about a broken toilet at 3 a.m. And REITs pack a punch for any income portfolio out there.
In this edition of Investing With Charles, I tell you why REITs are one of my favorite income investments, and I give you one of my top REITs to buy now.
I hit on some of the benefits of REITs as income investments in the video above. If you want to read more, click here to read my recent article, Invest in REITs: Your Guide to a Top Income Asset.
Here are some highlights of my conversation with research analyst Matt Clark:
How Many REITs Should You Own?
It’s hard to have an income portfolio that doesn’t include REITs. If you’re looking for income, you’re looking for consistent dividends. If you’re putting together a portfolio of high-yielding, consistent, dividend-growing stocks, how are you not going to add REITs? Almost by accident, they’re going to get added to your portfolio.
You need a handful. In a diversified portfolio of 20-30 stocks, you might have 5-10 REITs. That’s no exaggeration if income is your goal. If you want to pay those retirement bills with consistent income, it’s hard to avoid REITs.
You want them in your portfolio. They’re real estate, and real estate has been the preferred asset class of wealthy people since the dawn of civilization. As soon as people started settling down, they started investing in real estate. That’s just what we do as a species, it appears.
Easy Real Estate Diversification
REITs are a nice way to invest in property without the hassle of maintaining that property. And they offer diversification within real estate.
If we want to buy a distribution center or an office tower, you and I aren’t going to go buy the office tower. We don’t have $100 million in our pocket that it would take to buy something like that. But we can buy a REIT that might own a portfolio of dozens of those type of properties. We get a little sliver of all of them.
It’s instant access to a diversified portfolio of real estate — arguably the most attractive asset class in history.
You don’t need to stop at one REIT. You should diversify within the space.
REITs tend to be specialized, so you can get REITs that buy boring retail staple properties. You can buy distribution centers. You can buy cell towers. It’s like that old commercial from the dawn of the iPhone: “There’s an app for that.”
There’s a REIT for that.
Build a diversified basket, and you can eliminate sectors you don’t like. Let’s say you don’t like office towers right now because there are fewer people going to the office amid COVID. Office space REITS are not as lucrative as they used to be. Don’t buy that type of real estate. There’s a cornucopia of REITs to choose from. You can build any diversified portfolio you want.
Read more: REITs are also a great inflation hedge, offer great income and benefit from certain tax rules. Read more here.
A Top REIT to Buy Now
I’ve always loved Realty Income Corp (NYSE: O).
This company calls itself the “monthly dividend company,” and it’s a dividend-paying workhorse.
It owns the most boring properties you can imagine — convenience store buildings, Walgreens buildings, gas stations and more. This is high-traffic real estate that serves a need, and that’s it. Realty Income buys these properties, collects the rent and then returns it to you as a dividend.
It’s made 612 consecutive monthly dividend payments, and it’s raised the dividend in 95 consecutive quarters. That’s a nice run. And it’s compounded that dividend between 4% and 5% per year, which is over the rate of inflation (up until this year, anyway). It’s been compounding that dividend well above the rate of inflation for its entire history as a public company. That’s compound annual growth for decades. And there’s no real indication it’s slowing down anytime soon.
If you want a nice addition to a retirement portfolio, Realty Income fits the bill. An added bonus is that it pays its dividend monthly instead of quarterly.
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Coming up this week, Matt will have more on The Bull & The Bear podcast, so stay tuned.
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To safe profits,
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.