Everybody is talking about oil stocks taking off, but when I look at my own industry heat chart, I see that real estate is currently the hottest stock market sector.
If you want to see my chart, visit bit.ly/Harrys_Hot_Sectors, select the bar chart display, and “Past Three Months” for the time frame.
Rather than buying entire office buildings or apartment complexes, you can participate in the real estate sector by buying real estate investment trusts or REITs.
Real estate investment trusts come in two categories, 1) property real estate investment trusts that own commercial real estate properties such as shopping centers, apartment complexes, industrial parks, etc. and 2) finance real estate investment trusts that hold mortgages secured by real estate.
Although they trade similar to regular stocks, real estate investment trusts are a special type of corporation. They don’t pay federal income taxes if they distribute at least 90% of their taxable income to shareholders.
That’s why many real estate investment trusts pay high dividends, often equating to 4% to 6% annual yields. Real estate investment trusts dividends are mostly taxed as regular income instead of the lower 15% or 20% capital gains rate. So it’s best to keep real estate investment trusts in tax-sheltered accounts.
Finviz stock screener
I used the free stock screener available on finviz.com to pinpoint real estate investment trusts worth considering. Here’s what you need to know to run your own screen.
Start by selecting “Screener” on the finviz homepage (finviz.com). Finviz uses “filters” to define selection criteria. You can see the available filters by clicking on “All” on the filters bar. Then, use the dropdown menu associated with each filter that you want to use to specify selection values.
Define search universe
Start by selecting “USA” using the country filter, then selecting “Real Estate” using the sector filter, and “Over 3%” using the dividend yield filter to limit your list to high-dividend paying, real estate industry stocks, based in the United States.
Institutional players such as mutual funds and insurance companies hire squads of analysts to ferret out the best stocks in any category. So, rather than doing the analysis yourself, select “Over 40%” for “Institutional Ownership” to limit your list to real estate investment trusts that the smart money likes.
Along those same lines, stock analysts get paid big bucks to spend their days analyzing stocks. So, specify “Strong Buy” using the Analyst Recommendation filter to pinpoint the stocks that they like the most.
Trend is your friend
Finally, specify “Quarter Up” using the performance filter to limit your list to already uptrending stocks.
My screen turned up three property real estate investment trusts and two mortgage real estate investment trusts. To minimize risk, rather than cherry picking, consider buying equal dollar amounts of each real estate investment trust.
• Alpine Income Property Trust (ticker PINE): Owns and manages single-tenant net leased commercial properties. Pays a 5.0% dividend yield.
• Global Medical REIT (GMRE): Leases specialized health care facilities that it leases to physician groups. Pays 5.6% yield.
• New Residential Investment (NRZ): Originates and invests in loans secured by residential properties. Pays 7.5% yield.
• NexPoint Real Estate Finance (NREF): Invests in loans secured by commercial properties. Pays 9.5%.
• Postal Realty Trust (PSTL): Owns and manages 1,000 plus properties that it leases to the U.S. Postal Service. Pays 4.3%.
As always, those are my ideas. Do you own due diligence. The more you know about your stocks, the better your results.
Harry Domash of Aptos publishes the Winning Investing and the Dividend Detective websites. Contact him at www.winninginvesting.com or Santa Cruz Sentinel, 324 Encinal St., Santa Cruz, CA 95060. To see previous Domash columns, visit santacruzsentinel.com/topic/Harry_Domash.