Discover why i think now its the perfect time to invest in “O”
Let’s be honest…
As Kenneth Fisher wisely said,
‘Time in the market beats timing the market.’
I totally agree and fully support this statement. But sometimes, great opportunities pop up, and when we spot them, we shouldn’t miss out.
What are REITs?
Companies that own and/or manage income-producing real estate are called Real Estate Investment Trusts (REITs). These companies allow investors to buy shares and earn dividends as passive income while they don’t have the hassle of owning the property.
“You can actually invest in Real Estate without owning the properties.”
Why Now?
REIT is one of the stock market sectors that underperformed S&P 500 over the past few years. One of the main reasons for the poor results of REITs is the high interest rates. As a rule of thumb, when interest rates are high, the borrowing cost is higher, lowering the profitability of REITs and also the return on investment for investors.
At the same time, higher interest rates make other type of investments; like bonds, more attractive so investors shift their money, driving REITs prices down. It’s clear that high Interest rates and REITs prices are correlated.
‘There’s a clear link between REIT returns and interest rates’
‘When rates rise, REITs often struggle, and their returns can suffer.’
With Federal Reserve rate cuts expected, investing in REITs now could be a wise choice.
Why Realty Income (O)?
Realty Income (ticker symbol “O”) is one of the most well-known REIT in the stock market and is also known as “The Monthly Dividend Company”. As stated on their web site, they “own 15,450 properties across 89 different industries leased to over 1,500 different clients throughout all 50 U.S. states, the U.K., and six other countries in Europe.”
Realty Income is like a huge landlord that leases properties to businesses.
Since REITs must distribute 90% of their taxable income, they are one of the most attractive options for investors seeking passive income from their investments.
What are the benefits of investing in REITs?
Portfolio Diversification: Diversification is one of the most important foundations for an optimally structured portfolio. REITs can add exposure to Real Estate sector, increasing the diversification of our investments.
Future Growth Potential: The potential and expected interest rate cuts, will boost the growth of REITs and apart of the dividend returns will also boost the capital gains for the investments in Real Estate.
Passive & Stable Income: Investors are always looking for passive income and REITs will continue to provide it as they must distribute up to 90% of their taxable income back to shareholders.
Higher Dividend Yield: Since REITs underperformed the market during the last few years, their dividend yield is now higher, providing a good opportunity for investors to earn higher return as passive income.
The Bottom Line
Based on historical data, REIT prices tend to decrease during periods of high interest rates and increase when interest rates are lower. With expectations of Federal Reserve rate cuts looming, investing in REITs now could be a strategic move.
