The Stock Market Plunge: Why I’m Investing in a REIT

The broader market has become a bear victim, with the S&P 500 index falling 20% ​​from its recent peak in 2022. It is difficult to see a decline in stocks, as it usually means that your net worth is declining. That’s why I focus more on dividends than stock prices.

And if you love dividends, as I do, one of the best places to find them is in real estate investment trusts (REITs). Here are three reasons why I continue to love my REITs, despite the downturn in the market.

1. A Mental Twist

The price of a stock is nothing more than a number that often moves up and down irrationally throughout the day. If you pay too much attention to stock prices, your stomach will be upset. They cannot be predicted in the short term, and in my opinion, gyrations don’t really hold that much informative value.

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That’s why I prefer to focus on dividends, which represent a solid return on my investment. REITs must pay 90% of their taxable income to maintain REIT status and avoid corporate-level taxes. They are dividend machines.

When I track my portfolio during the month, I’m really only counting the dollars I’ve been paid in dividends (like Mini-Midas, I guess). Dividends tend to be fairly stable over time, so this isn’t particularly exciting.

I reinvest dividends, so I’m happy to collect a few more dollars with each new quarter. And in the rare situation where dividends are cut, I know I have to do some research. (In fairness to myself, I monitor company performance quarterly, so I’m generally aware of the risk of a cut before it even occurs.)

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The point is, I’m not seeing the value of my holdings on a day-to-day basis, so I don’t get to see the market volatility. And this helps me to stay invested in both bull and bear markets.

2. A Basic Business

While the dividend-focused nature of REITs fits in well with my dividend-focused investing approach, that’s not the only reason I like it. Another great thing is that I understand the REIT business model. REITs such as WP Carey (WPC 5.27%), Realty Income, Simon Property Group, and Federal Realty (FRT 0.83%) own properties and lease them to tenants. it’s not rocket science.

There are basic factors you need to understand, such as occupancy (how much of the portfolio is rented out) and property type dynamics (malls are different from shopping centers, which are different from stand-alone retail properties, for example). ), among others . But controlling them is not difficult. In fact, listen to a conference call from every REIT you’re looking at and you’ll probably understand the basics of the business. In my investing world, simple is good, and REITs are very simple.

All that said, don’t underestimate the value of what is said when the world around you is becoming increasingly complex. This last bull/bear cycle has been particularly interesting on this front, given the rise (and now decline) of things like meme stocks, blank check companies, and companies that seemed hot in the early days of the pandemic, but then The demand for their services has come down because of the pandemic.

3. Dividend Safety Net

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I haven’t retired yet, but my ultimate goal is to reinvest dividends until I’m ready to retire. Then I can turn on the income stream and live off my dividends, leaving my savings untouched. While REITs like Realty Income and Federal Realty fall into the Dividend Aristocrat and Dividend King categories, respectively (WP Carey is on the verge of being an Aristocrat), I’m confident I’ll have a reliable base of passive income.

This concept isn’t uncommon at all, but it comes with another small benefit that most people don’t consider. In a worst-case scenario, the income I’m earning from dividend-paying stocks like REITs can be used to pay my bills today — if I need to. It’s not ideal, but if I’m suddenly out of work, I know I have income I can count on.

So REITs are a small part of that safety net for me, given that they pay physical dividends. That said, REITs are negative for income, in that you must pay taxes on the REIT dividend as if it were earned income. But I’m fine with that, given that REIT dividends avoid corporate-level taxes. And if I need income? Well, I’d be happy to receive a quarterly (or monthly, in the case of Realty Income) dividend checks during a rough patch in my life.

4. Some REIT Names I Like

My favorite REIT is probably WP Carey. It has a diversified portfolio, spread across industrial, warehouse, office, retail and self storage sectors. On top of that, about 37% of rents come from outside the United States. And it has increased its dividend every year since its initial public offering in 1998. This is as close to a one-stop-shop REIT as you can get in my opinion.

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Another name worth a deep dive for dividend lovers like me is Federal Realty. The REIT owns strip malls and mixed-use developments. It focuses on owning well-positioned properties in highly desirable markets, choosing quality over quantity in a portfolio with only about 100 properties. Growth and redevelopment are key focus areas, as it keeps its portfolio relevant with lessees and consumers. That said, Federal Realty’s claim to fame is that, at 54 years and counting, this dividend king has the longest streak of annual dividend growth in the REIT sector.

An investment for a bear market or not

The great thing here, however, is that buying a REIT is not a bear market strategy for me. It’s a core part of my long-term, dividend-focused investing approach. The REIT dividends I collect have helped me get through tough times emotionally and financially. They are about as close to an ideal investment vehicle as I can probably find on Wall Street. That’s why I buy them in both a bull market and a bear market – and why would you want to, too.

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