established track records, I compiled the following list that I felt worthy of further scrutiny. I did include one mortgage REIT, and one REIT, American Tower Corp (AMT), that offered growth potential. Otherwise, I only included REITs that I felt were reasonably valued today and offered above-average current yields.
To be clear, I do not consider myself an expert in the subsector, but I did come across some selections that I felt might be worthy of additional research and consideration. Although I consider most of the companies on this list reasonably valued, there are also a few that I would consider fully valued. But I leave it up to the individual reader to make those determinations on their own cognizance. Frankly, I believe there are plenty of quality REITs available, but I also believe that many have extended valuations even in today’s low interest rate environment. Therefore, I suggest caveat emptor, or for those that don’t know Latin, let the buyer beware.
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
American Tower Corp.
I only include American Tower Corp (NYSE:AMT) because I felt it appeared to offer very interesting long-term growth prospects that were unique among the REIT subsector. Furthermore, it should be pointed out that American Tower Corp has only been a REIT since the beginning of calendar year 2012. Also, the reader should note that in contrast to most REITs, this particular selection does not offer a lot of dividend yield. However, it does offer intriguing growth prospects, especially if it can be purchased a little cheaper than it currently is priced.
As I previously stated, what intrigues me most about this particular REIT is their prospects for growth. Although the current yield is very low relative to most REITs, they are expected to increase their dividend by 20% annually as their AFFO grows. Therefore, in contrast to your typical REIT, this particular example appears to emphasize growth and dividend growth over current yield. Nevertheless, I thought it was an interesting candidate for readers to examine.
Monmouth Real Estate Investment Corporation (MNR)
My final REIT example is Monmouth R.E. Inv. Corp. (NYSE:MNR), which I offer as an example for those investors most interested in current income. Although there is not a lot of growth with this particular REIT, their current yield exceeds 6%, and their attractive valuation is what intrigued me most. At first blush, Monmouth Real Estate Investment Corporation appears to be a potential candidate for yield-hungry investors in today’s low interest rate environment. Although I would stop short of calling it a bond alternative, I believe this particular REIT offers more bond like attributes than most other REITs I examined.
With the above said, it should also be pointed out that this company’s FFO growth rate has accelerated over the last 2 years from its typical 1% average to 9.2%. Perhaps this explains why the 4 analysts that are following the company and reporting to Capital IQ are forecasting 9% growth over the next 5 years. I am not sure that this is realistic or not, but is certainly worth a little research to find out. Additionally, this REIT has a long history of stability and consistency coupled with their above-average dividend yield. Historically, this REIT has produced very little growth, but has established a very consistent dividend distribution record. Consequently, if current yield is your objective, this REIT may be worth further scrutiny.
Summary and Conclusions
The Financial sector was a very interesting sector to examine. In spite of all the controversy that has surrounded this sector in recent years, I was able to find many candidates that I felt possessed quality and consistent long-term opportunities. However, what I did not adequately reflect in this article, is how diverse the Financial sector really is. There were many companies excluded simply because their historical operating results did not meet my standards of quality and consistency.
For those investors interested in banks, it appears that the Canadian banking sector offers numerous attractive opportunities. There were two domestic banks that I felt looked intriguing, but both would represent turnaround situations as they recovered from the Great Recession of 2008. Those banks were Wells Fargo and M&T Bank. However, only Wells Fargo was featured in the article.
My next article will cover Sector 45 – Information Tech.
Disclosure: Long C, WFC and AFL at the time of writing.