|San Gerardo de Dota, Costa Rica|
I’ve written many times that I like real estate. I like stocks, too. But real estate helps reduce the risk of investing in the volatile stock market because it does not always move in tandem with other equities.
And when friends or clients ask why I am especially fond of real estate investment trusts (REITs), I sum it up with four reasons:
REITs own a basket of properties. Not just six or seven, often there will be several hundred in their portfolios. These holdings could be concentrated in one or two regions in the
REITs can generate a regular stream of income from the rent they collect from tenants. Then, by law, they must pay out at least 90% of their taxable income to shareholders. This has historically put REIT dividend yields considerably higher than average yield for the S&P 500 Index.
#3— Protection against Inflation
Real estate values and rents have historically risen along with inflation in our country. In fact, in all but two of the last 20 years, REITs’ dividends have beaten the Consumer Price Index.
#4— Total Return
When you combine strong, consistent dividends along with stock price appreciation, REITs have provided investors with higher returns than most other equities and bonds.
The proof: The FTSE NAREIT All Equity REIT Index has outpaced the S&P 500, the Nasdaq Composite, the Dow, and the Russell 2000 indices over the last 1-, 3-, 5-, 10-, 15-, 20-, 25-, 30-, 35-, and 40-year periods ending June 30, 2012.
That a pretty impressive record, if you ask me.
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