Big-Dividend REITs: Ranking The Best And Worst

It’s been a choppy year so far for big-dividend Real Estate Investment Trusts (REITs). This has created some attractive buying opportunities as the market moved from January/February distress, to a near-infatuation with yield in the months that followed, a Brexit-induced flight to quality, a new real estate sector, and perhaps another leg lower following the upcoming November 1-2 Federal Reserve meeting. For your consideration, we’ve provided a ranking of the best and worst performing big-dividend REITs year-to-date, and we’ve also provided five general recommendations on how to “play” the current state of the REIT sector. Further, we cover several specific REIT opportunities in this article, and provide our Top 10 Big-Dividend REITs worth considering here.

For starters, the following table ranks the year-to-date total returns (dividends plus price appreciation) of the 75 REITs that passed our screen (we required at least a 5% dividend yield and $500 million in market capitalization). The table also provides several additional metrics that we believe are worth considering.

Several things stand out to us about the data in this table:

1. If you’re a contrarian, don’t just buy the worst performers

We believe there is a general tendency for individual security performance to sometimes revert towards the mean. This means what performed the best in the past, likely won’t perform the best in the future, and vice-versa. For example, with regards to the worst year-to-date performer in our table, Corrections Corp (CXW), we wouldn’t buy it. This is a company that runs for-profit prisons. It’s been in the crosshairs of pension funds, activists, and legislators for years. And following the Department of Justice decision in August to reduce its reliance on private prisons, the stock tanked. Big time. It’s down about 60% since August 1st. Even though Corrections Corp may soon experience a dead cat bounce, we’re still not buying this 15.4% yielding REIT. We’re also not buying Geo Group (the fourth worst performer in our table, and also a for-profit prison) despite its 10.7% dividend yield. These are big-dividend REITs we just can’t get behind because of the social and legislative risks.

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