3 Unloved High-Yielders That Will Rise With Rates (and pay up to 7% in cash!)

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Once again, almost everyone has gotten sucked in by a tired investor slogan that’s dead wrong—and it’s costing them big gains (and income).

But that’s good news for contrarians like us, because we can bank some easy profits thanks to this all-too-predictable reflex.

That’s especially true now that the Federal Reserve has sent out a blaringly obvious signal that it’s stuck to its rate-hike track, calling the economy “strong” after its latest meeting last week.

But let’s not get ahead of ourselves. Before I go further, the shopworn myth I’m talking about is that REITs nosedive when interest rates rise.

Many folks just can’t be talked out of it, despite all evidence to the contrary, including the fact that REITs skyrocketed during the last sustained rising-rate cycle, in 2004–06.…
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Looking for high yield investments, packed in a convenient fund wrapper? You’d better look beyond these three popular names.

I’m going to show you how to “cherry pick” their best holdings today. We’ll even discuss some better “clicks to make” so that you can sell these dumb money funds if you hold them, and buy some better value (and higher yields!) instead.

What’s the price of popularity? Well, investors have sunk about $43 billion into three of the ETF world’s biggest, most prominent names. And they have less to show for it than several better-managed but under-the-radar funds.

In fact, given that these aforementioned “dumb funds” are among the biggest players in their three respective asset classes, it’s very likely that you own one if not more of these first-in-name but second-class ETFs.…
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Andrew, Arthur and Paul knew their REIT stock was too cheap. So, last August 21, the trio slapped down three independent bets on their firm’s stock using their own money. Their reward? Quick 26% returns:

REIT Moguls Know Best, for Quick 26% Gains

Did they time the entire sector bottoming? No – Vanguard’s Real Estate ETF (VNQ) dropped 5% over the same time period. But that was just noise, because these boys knew their own business. They cherry picked the bargain.

It shouldn’t be a surprise that a chief financial officer (CFO) and his cronies would nail this trade. After all, finding deals with real estate investment trusts (REIT) is a straightforward 2-step process:

  1. Find a high relative yield, and
  2. Buy it if “first-level worries” will soon prove fleeting.


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“First-level” investors – those who buy and sell on headlines – mistakenly believe that real estate investment trust (REIT) profits will suffer if rates continue to rise. They’re wrong. This is actually an ideal time to buy the strongest names in the sector.

Note that I said strongest. The sector’s popular proxy is something you should avoid, despite its popularity. I’ll call it out in a moment.

Overall, rising rates are actually good for the best REITs because it signals a rolling economy. These landlords have no problem raising their rents when their tenants are making money.

Unfortunately, the business world is increasingly becoming a neighborhood of “haves” and “have nots.” And some REITs are not doing well, despite the broader tailwinds.…
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Real estate investment trusts (REITs) are as cheap as they’ve been since the financial crisis right now. The sector as a whole has been battered for more than half a year, driving yields on the Vanguard REIT ETF (VNQ) to their highest point since the 2009:

The REIT ETF VNQ Pays Nearly 5% Today…

If you bought REITs then, you doubled your money in less than four years:

… A Bullish Sign for Those Who Like 100%+ Gains!

And while this may be a fine time to buy VNQ, there are even better deals to be had amongst the “niche” landlords – both in, and outside, of the benchmark REIT index.…
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I had to laugh when I saw this Barron’s headline last week:

“REITs Are Sending a Powerful Buy Signal”

My response? Of course they are! They have been for a while now!

If you’ve been following my articles on Contrarian Outlook, you know I’m a big fan of real estate investment trusts, with their outsized dividends (and dividend growth) and upside potential.

And now the press is finally paying attention.

It is satisfying when the pundits finally catch up to us. But the bad news is that it also means our shot at the biggest gains (and dividends) is likely on borrowed time as the headline-driven herd piles in.…
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“First-level” investors – those who buy and sell on headlines – mistakenly believe that real estate investment trust (REIT) profits will suffer if rates rise.

Sure, in the short run, the “rates up, REITs down” theory puts on quite the show. When the 10-Year Treasury’s yield rises, REITs usually fall. And when its yield drops, REITs usually rally. This inverse relationship tends to hold up over multiple days, weeks and even months:

A Short-Run Seesaw Between REITs and T-Bill Yields

However the “long view” shows that many of these short-term moves are merely noise. It is possible for REITs and higher rates to coexist in profitable harmony:

But Long-Run REITs and High Rates Can Co-Exist

Investors who are bailing on REITs are missing out, because they are currently paying their highest yields this decade:

Highest REIT Yields Since the Financial Crisis

Most income hounds get it wrong.…
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Lately, I’ve heard more real estate bulls touting rental property as the perfect retirement investment.

Truth be told, it can be.

You probably know people who’ve built a nice income stream in their golden years from a well-chosen set of rentals.

Trouble is, there’s a big—and too-often glossed over—problem with being a property baron: it’s not the easy ride housing fans make it out to be! That is, unless you like being on duty 24/7 to fix clogged toilets, chase down deadbeat tenants and deal with noise complaints.

I don’t know about you, but that’s not how I plan to spend my golden years.…
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The REIT bears have gone too far this time.

In the past few days, I’ve seen a lot of panicky commentary warning that incoming Federal Reserve chair Jerome Powell will raise rates too fast after he takes over in February—and that would be a disaster for real estate investment trusts (REITs).

Don’t take the bait.

Because it all adds up more fear-fanning headlines from a business press desperate to make something out of nothing.

I’ll show you why in a moment. Then we’ll move on to 3 corners of the REIT space (and 5 stocks in particular) that underperformed in 2017—and are poised to spring back big time in 2018.…
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Q: Are REITs (real estate investment trusts) going to be hurt by the new tax reform?

Not at all. In fact, the new tax plan actually favors these generous dividend payers.

Let me explain why – and then point you towards the best REITs to buy for 2018.

A Smaller Tax Bill on REIT Dividends

The IRS already allows REITs to avoid paying income taxes if they pay out most of their earnings to shareholders. As a result these firms tend to collect rent checks, pay their bills and send most of the rest of the cash to us as dividends.…
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About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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