Stock of the Week
Investors Real Estate Trust
Nasdaq symbol: IRET
Price as of 5/20: $9.43
Halfway through May and the averages continue to consolidate. The commodities have succumbed to profit-taking. Other sectors have also pulled back as investors reduce risk. A couple of areas that continue to buck the trend since mid-April are the defensive and high dividend paying companies from the healthcare space and the consumer staples sector. For example Phillip Morris, Kraft and WellPoint continue to make new 52 week highs while paying nice dividends to boot. Another sector that has shined of late is the Real Estate Investment Trusts or REITS. A REIT is simply a trust that invests at least 75% of total investment assets in real estate, derive at least 75% of gross income from rents or mortgage interest, and distribute 90% of their taxable income to shareholders or be subject to federal corporate income taxes. REITs just like stocks vary dramatically. Some REITs specialize in commercial properties for businesses or retailers like malls. Other REITS invest in apartment complexes or mortgage REITs. REITS are by no means a conservative investment due to high debt levels and the volatile natural of the real estate market. In fact, many REITs failed during the financials crisis, but the REITS that survived are well positioned to profit from the improving economic fundamentals that should hopefully last for years.
One fund family that has experience in the REIT sector is Nuveen. The Nuveen Real Estate Income closed-end fund, (JRS) investments in stocks of companies operating in the real-estate sector across all market capitalizations and currently provides a dividend yield of 7.5% and goes ex-dividend on June 11th. The book value on this fund is $9.79 a share. The Nuveen family also provides other high income closed-end funds that have also performed well the last several years as investors rotate into income ideas.
A second REIT called, Investors Real Estate Trust with the symbol (IRET) is based in North Dakota with a 40 year track record. This REIT owns multi-family residential properties, commercial office, medical, industrial, and retail properties located primarily in the upper Midwest states of Minnesota and North Dakota. The stock has performed well the last several years yet insiders remain bullish continuing to buy the stock in recent months. This REIT pays a solid dividend of 69 cents per share, equivalent to a 7.4% yield and goes ex-dividend on June 11th as well. The book value for the trust is currently $4.92 a share.
The market is clearly in a correction phase as fund managers flee the commodities and other volatile sectors. Income producing ideas like the REITS provide great dividends with capital appreciation potential as the economy and real estate markets continue to slowly improve.