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Landlord Stocks: 3 Monthly Paying REITs

Posted: Oct 06, 2008 10:29 AM by Aaron Levitt

Tickers in this Article: IRC, AMY, O

Will Rogers once said, "Buy Land. They aren't making any more of the stuff." This could explain why so many get-rich-quick schemes focus on real estate investment. Late night infomercials aside, rental properties have traditionally been a good way to supplement retirement income. However, with the current housing mess, the looming recession and the credit markets freezing, it's hard to get a second home, never mind a third or fourth.

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Enter REIT's
Real estate investment trusts are a great way for the average investor to own property assets. They cover a wide swath of the real estate market, owning everything from shopping malls and apartments to housing loans and retirement communities. They offer wide diversification over a single rental residence. In exchange for operating under a different set of tax rules, REITs are required to distribute 90% of their earnings back to shareholders. In doing so, REITs often have higher than normal dividend yields which make them perfect for income investors. Unfortunately, most trusts pay their distributions quarterly negating one of the beauties of the landlord-tenant relationship; the monthly rent check.

Three Monthly Paying Picks
The real estate income investor is in luck. There are a few trusts that will put cash in your pocket every month of ownership. Each is backed by multiple tenants across several states giving the investor some diversification. (For related reading, see The Importance Of Diversification.)

Realty Income Corporation (NYSE:O)
This company could be called the grandfather of the monthly dividend REITs. In fact the company bills itself as "The Monthly Dividend Company". Keeping up with this promise, Realty Income has paid a steady monthly dividend since its founding in 1969. That's 458 total consecutive monthly payments that have been made. Since the companies IPO in 1994, Realty Income has increased its monthly distribution 51 times and is currently yielding around 6% or $1.69 annually. Mergent and S&P have included Realty Income into their Dividend Achievers and Dividend Aristocrat indexes.

Funds from operation (FFO), an important factor when determining REIT health, have experienced about a 13% compound annual growth rate over the previous five years. FFO is backed by more than 2,000 retail properties in more than 49 states, totaling 18.5 million square feet of leasing space. Realty Income rents this space to national merchants such as Barnes & Nobles, Best Buy and Kroger.

AmREIT (AMEX:AMY)
This company is a smaller commercial retail REIT based in Texas that trades on the American Stock Exchange. The company focuses on its Irreplaceable Corners campaign using population density, barriers to entry and household income to create lifestyle centers and plazas. AmREIT has used this strategy to own and operate 70 properties, totaling 3.4 million square feet of space. Assets under management have grown from $100 million in 2002 to just under $1 billion today. Currently, at a price of seven dollars, the stock is yielding a healthy 8%. The three analysts who follow AmREIT currently rate it as a 'buy'.

Inland Real Estate Corporation (NYSE:IRC)
Inland is a Midwestern-based REIT formed in 1994. Inland manages and operates 146 properties across 11 states or approximately 14 million square feet of retail space, 65% of which is located within the Chicago metro area. This is one of the few real estate markets that is going strong when compared to the rest of the country.

Inland is paying a healthy 6.5% and has raised its dividend 13 times in the past 12 years. Insiders over the last six months have purchased 34,200 shares of company on the open market. (To learn more about the significance of insider purchases, read Can Insiders Help You Make Better Trades?).

Bottom Line
Real Estate has always been a great way to supplement ones retirement income. However, given the current housing mess it may be practical to choose other real estate investments. The preceding three REITs offer investors and retirees the benefit of collecting monthly "rent" checks without the hassle of owning the rental properties.

By Aaron Levitt

Aaron Levitt is an accountant with a non-publicly traded real estate limited partnership. He received his Bachelor of Science degree in economics and international business from Pennsylvania State University and is currently working on his master's degree. Levitt advocates long-term value investing within a global framework.

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