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As we approach the end of a tumultuous 2011, it's time to look back at the biggest winners and losers of the year.
So in this series, that's exactly what we're doing, sector by sector. Today, let's take a look at the biggest winners in the retail REIT sector. First, the backstory, then the results.
This year, we saw U.S. Treasuries get downgraded from AAA status while Congress played politics instead of fixing the budget; a domestic economy that has been recovering from its financial crisis in fits and starts; big trouble in Europe; and a Chinese economy that doesn't seem so bulletproof.
The daily volatility in the financial industry has been tremendous, but REITs haven't been swinging around as wildly as banks. Part of that is because European debt fears have been manifesting in bank stock volatility, but REITs have also been less volatile because of the dividend yields that are a hallmark of the sector. This is because a REIT has to pay out 90% of its taxable income in order to keep its favorable tax status.
Another thing to keep in mind with REITs is that most are heavily leveraged. As a result, any change in the Fed's actions to keep interest rates low could hurt future debt refinancings.
The best retail REIT stocks of 2011
For context, the S&P 500 has returned 1.3% after dividends this year. In other words, the market has been basically flat.
2011 Dividend-Adjusted Return
Price-to-Tangible Book Value
|Simon Property Group (NYSE: SPG )||33.7%||8.2|
|Taubman Centers (NYSE: TCO )||26.9%||NM|
|Federal Realty Investment Trust (NYSE: FRT )||20.9%||4.5|
|Tanger Factory Outlet Centers (NYSE: SKT )||18.0%||5.5|
|Acadia Realty Trust (NYSE: AKR )||12.9%||2.5|
|Glimcher Realty Trust (NYSE: GRT )||12.7%||6.0|
|Macerich (NYSE: MAC )||10.8%||2.5|
Source: S&P Capital IQ. NM = not meaningful.
In a tough economy, these retail REITs have given investors solid returns above their dividend yields, which range from 2.7% to 4.3%. Unlike many of their peers recently, these REITs have seen investors willing to pay goodly premiums to tangible book value for them (Taubman's price-to-tangible book value isn't meaningful because it has negative book value).
As you look at this list for investing ideas, remember that big dividends don't guarantee big returns, and make sure that the premiums are worth it.
If you're looking for other dividend-producing opportunities in the financial space, let me leave you with a regional bank that has some of the best operational numbers I've ever seen. I wrote about it in our brand-new free report: "The Stocks Only the Smartest Investors Are Buying." I invite you to take a free copy. Just click here to find out the name of the bank I believe Buffett would be interested in if he could still invest in small banks.