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 residential real estate investment trust sector (as opposed to mortgage REITs, which generally own securities, not actual real estate; you can see 2011's best mortgage REIT performers by clicking here). First, the back story, then the results.
The back story
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 European debt fears manifesting in bank stock volatility, but the 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 Federal Reserve's actions to keep interest rates low could hurt future debt refinancings.
The 10 best residential 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.
|
REIT |
2011 Dividend-Adjusted Return |
Price-to-Tangible Book Value |
|---|---|---|
|
American Campus Communities |
36.6% | 2.3 |
|
Education Realty Trust |
33.5% | 1.8 |
|
Essex Property Trust |
27.6% | 3.6 |
|
Post Properties |
23.0% | 2.2 |
|
Equity LifeStyle Properties |
20.7% | 4.2 |
|
Avalonbay Communities |
18.9% | 3.0 |
|
Sun Communities |
18.9% | NM |
| BRE Properties | 18.5% | 2.4 |
| Camden Property Trust | 17.6% | 2.6 |
| Equity Residential | 12.3% | 3.0 |
Source: S&P Capital IQ.
In a tough economy, these residential REITs have given investors solid returns this year above their current dividend yields, which range from 2%-6.8%. Investors have been willing to pay premiums to tangible book value for these REITs (Sun Communities' price-to-tangible book value isn't meaningful because it has negative tangible 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 Warren Buffett would be interested in if he could still invest in small banks.
