Big-Dividend REITs: Ranking The Best And Worst

4. Consider the Short-Interest

The “Short % of Float” column in our table shows the percentage of the company's publicly traded shares that have been shorted. This can be a valuable metric to consider because it can provide insight into market sentiment and it can help explain price movements. For example, many of the Hotel REITs in the table have a relatively high amount of short-interest, which adds color to this sub-industry’s recent poor performance (a lot of investors are betting against hotel REITs, which can certainly impact the price).

Omega Healthcare (OHI): As another example, Omega Healthcare is an income investor favorite because of its big dividend (7.2%) and low valuation, but its short interest should also be considered. Certainly Omega’s focus on skilled nursing facilities contributes to its relatively low valuation (the threat of legislative reform to Medicare could significantly reduce Omega’s profitability), but the high 16.7% short-interest should also be taken into consideration. Specifically, the short-interest is likely a contributor to (and symptom of) the stock’s recent underperformance, and the market’s somewhat negative sentiment towards Omega.

5. Be Opportunistic: Especially Around the Fed

You are likely pleased if you were able to take advantage of the depressed REIT prices in January and February of this year (i.e. you may have bought big yields at low prices). However, we may be about to get some additional buying opportunities as we approach the upcoming Federal Reserve meeting on November 1st and 2nd. Specifically, if the Fed raises rates or makes a “hawkish” announcement then we could see another selloff in REITs (i.e. a buying opportunity). More specifically, REITs may sell off because they’re highly levered and higher rates means more expensive debt and less profitability. Additionally, higher interest rates (or the threat thereof) could cause investors to look towards other interest-paying options to capture the yield they seek, and therefore cause REITs to selloff (which would create a buying opportunity, in our view).

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Disclosure: None.

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