Three Reasons to Invest in These REITs


By Nancy Zambell

Editor of Investment Digest and Dividend Digest


Buy for the Generous Dividend

Stay for the Capital Gains

Significant Upside for this Commercial REIT


In February, I wrote a Cabot Wealth Advisory article about Real Estate Investment Trusts, citing their diversification, liquidity, high income, and portfolio protection advantages (click here to read the article). With interest rates still historically low, and the economy and real estate market improving, I recommended that you purchase a mortgage REIT, Invesco Mortgage Capital (IVR).

That turned out to be a good recommendation, as at that time, IVR was trading at 15.85 per share. Since then, the REIT has paid a dividend of $0.50 per share and seen its price rise to 16.82. Combined with the dividend, that gives you a return of 9.3% in three short months!

Investors like to buy REITs when they are concerned about the market and the economy. You only have to look at the volatility of the markets so far in 2014 to determine that many investors remain concerned about the economy, and are wondering if 2014’s excellent market returns can be sustained.

Yes, we are still in a period of economic recovery, and that should bode well for all stocks. But the potential for REITs continues to be excellent.


In this month’s Dividend Digest, our contributors have recommended two commercial REITs. John Dobosz from Forbes Dividend Investor recommended Realty Income Corp. (O), based on its discounted valuation. And Ross L. Smotrich of Barclay’s Capital advised buying shares in Alexandria Real Estate Equities (ARE), due to strong industry trends, rising occupancy rates and undervaluation.

I agree with their assessments and think commercial REITs continue to be attractive for the following reasons:

Interest rates are still very low. The Fed Funds Rate (the rate at which banks borrow from each other) remains at 0.25%. The average 30-year mortgage rate stands at 4.29%, still incredibly cheap. That means that businesses, REITs and homebuyers can still borrow very cheaply.

Delinquencies are declining. Commercial and industrial loans losses have declined to 0.30%, their lowest level since 1984, and considerably smaller than the post-recession high of 2.72%, according to the FDIC. And commercial lending is rising, with Wells Fargo and Bank of America adding to their portfolios by 1.1% and 0.1%, respectively. The Federal Reserve says that total commercial and industrial loans outstanding rose to a record $1.69 trillion for the week ended April 16, and loan growth was 12.4% in the first quarter, up from 7.2% in the last quarter of 2013—some 9% above the average since the financial meltdown.

Commercial real estate transactions are rising. According to a new forecast by the Urban Land Institute and Ernst & Young, leading real estate economists are forecasting that commercial property transactions will increase to $430 billion by 2016, which will be the highest level since pre-recession 2006.


I found another commercial REIT that looks very attractive: National Retail Properties (NNN), a real estate investment trust that invests primarily in single-tenant retail properties with long-term leases. Its top five tenants are Susser Holdings (owner of Stripe’s convenience stores; 5% of annualized base rate), Mister Car Wash (4.9%), Pantry (Kangaroo Express convenience stores; 4.4%), 7-Eleven (4.2%) and L.A. Fitness (4.2%).

This REIT was created in 1984 and has a long history of success. I’ve known and followed this company for many years and have bought and sold it several times, with great returns. I think the time is right to buy it again.

Headquartered in Orlando, Florida, National is a net lease company, which means its tenants pay for improvements and any repairs. The REIT has 1,903 properties in 47 states.

For the first quarter, National saw its revenues rise by 12.5%, to $104.07 million and funds from operations increase to $0.51 per share, up from $0.49 per share in the previous year’s first quarter. Occupancy is a steady 98.2%.

The company has rewarded shareholders with 24 years of consecutive dividend increases. It currently pays a $0.405 quarterly dividend per share, which adds up to a 4.7% yield. The shares were just initiated with an “Outperform” rating at Oppenheimer.

The company has a strong balance sheet, with plenty of cash, and is on the lookout for more acquisitions to add to its portfolio. I think its shares are undervalued, and could easily rise to 45. Combined with the dividend, that means significant upside from NNN’s current price of around 35.

For additional dividend recommendations I follow in the Dividend Digest, consider taking a risk-free trial subscription. Every day I’ll email you the pick of the day and from the best investment analysts in the business. Subscribe today and take advantage of our 75% discount.

Click here for details.


Nancy Zambell
Editor of Investment Digest and Dividend Digest

Stock Picks


This stock could rise 50% before becoming fairly valued.

This hot technology company is growing like a weed, thanks to products that speed up cloud communications.

This stock is somewhat well known, but far from well loved.

Cabot Wealth Advisory

Targeting Upside in PayPal Stock

By Jacob Mintz on October 25, 2016

PayPal stock is trending higher after last week’s strong earnings report, with plenty of upside. Here’s how options traders can take advantage of that potential.Read More >

Nine Characteristics of Great Growth Stocks

By Timothy Lutts on October 24, 2016

Recommending great growth stocks is our specialty at Cabot. But so is education--we want you to be able to find growth stocks on your own too. Here are nine characteristics of what to look for.Read More >

How to Find Great Growth Stocks in a Scary Market

By Paul Goodwin on October 21, 2016

Even in today’s scary market, there are great growth stocks out there. Here’s how to find them—and how to avoid the kind of losses that can haunt your portfolio.Read More >