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Worldwide Invest Better Day 9/25/2012

Our goal here at the Motley Fool is: To help the world invest. Better.

In that spirit, we've devoted a large portion of our time this September to letting the world know what it means to invest. Financial literacy isn't one of our country's strong suits, and we'd like to do what we can to change that.

In that spirit, I'll be spending this week and next revealing three of the Motley Fool's most oft-recommended stocks among our premium services, and three stocks our analysts think you should be wary of. Today, I'm going to focus on a little-known stock that four different services have recommended buying on seven different occasions in the past year.

But first, a primer on REITs
If you're new to investing -- or even if you aren't -- the word REIT might have no meaning. The acronym stands for real-estate investment trust. In the most basic sense, REITs run by offering shares to the public for a set price. Once the money from this sale comes into the company, it buys up property, which is then leased out to others -- like families wanting a home or a new restaurant looking for a place to set up shop.

If a company does a good job at selecting property -- that which is underpriced and should have no problem finding tenants -- then the arrangement works out well. The company consistently collects rent, and it already owns the property.

But there's a hidden bonus here, too: the REITs can remain tax-exempt by paying out at least 90% of their earnings to shareholders in the form of dividends. That means once expenses are taken out, 90% of that rent money is going right back to you.

A word of caution
What I've written above is a very simple view of REITs. Unfortunately, like many things in the investment world, some folks have taken this very simple concept and made it much more complicated in the effort to juice their returns.

Companies like Annaly Capital Management (NYSE: NLY  ) and Chimera Investment (NYSE: CIM  ) are REITs that offer up mouth-watering dividend yields of 12.7% and 14.2%, respectively. But they are far more complicated than the basic REIT structure described above. Instead, they rely on the spread between short-term borrowing rates and long-term interest rates to turn a profit. Only one Fool premium service currently owns Annaly, and none have touched Chimera.

A much better play
Today's recommendation, Retail Opportunity Corp. (Nasdaq: ROIC  ) , however, has been warmly embraced by our top analysts. The company raises money by selling shares to the public, and uses that money to buy shopping centers, improve their performance, collect rent, and then sell the land (hopefully) for significant gains.

That alone isn't enough buy in, though. So why have the Senior Analysts at Special Ops, Inside Value, Million Dollar Portfolio, and Income Investor services recommended the company? In one word: leadership.

CEO Stuart Tanz has been involved in real estate his whole life. Back in the 1990s, he guided Pan Pacific retail to an almost 8-fold increase in value before selling the business to Kimco Reality (NYSE: KIM  ) .

Now, he's at it again. Starting in late 2010, Tanz has been buying up shopping center properties in the depressed markets of the Amercian West. Revenue has increased from just $46 thousand in 2009 to $51.7 million in 2011. Over the last four quarters alone, that number has jumped to almost $65 million.

Just as important, the company is now turning a solid profit. Over the last month, ROIC has turned a profit to the tune of $8.3 million. And remember, most of that money needs to be paid out to investors. An improving commercial real estate market would be a catalyst to boost this already-solid business.

The company currently offers investors a respectable 4.5% dividend yield. But it's worth noting that this yield is already more than twice what it was offering just back in 2010. If business continues to improve, so too should the yield.

Invest better
If you have the inclination to find out more about investing, hopefully this description of ROIC provides a nice starting point. If you'd like to continue using the Fool as a source to better your knowledge of the financial world, jump over to our special page, On Sept. 25, we're taking a day to celebrate the art of investing, and we encourage your participation. Jump on over to the site now to continue your own personal investing voyage.

Fool contributor Brian Stoffel does not own shares in any of the companies mentioned. The Motley Fool owns shares of Retail Opportunity Investments and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of Retail Opportunity Investments and Annaly Capital Management. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (2) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 06, 2012, at 7:30 PM, goalie37 wrote:

    ROIC has been making money for me ever since Motley Fool first brought it to my attention shortly after the IPO. +1 rec and my eternal gratitude.

    One quick note is that most Fool articles on REITS seem to bring up net income, but seldom mention funds from operations (FFO) which is a much better indicator of profitability in REITs.

  • Report this Comment On September 09, 2012, at 3:26 PM, seattle1115 wrote:

    I like this company a lot - it's returned over 6% to me in just five months, once dividends are added into the mix.

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Related Tickers

10/21/2016 12:32 PM
ROIC $21.21 Up +0.02 +0.07%
Retail Opportunity… CAPS Rating: ****
CIM $15.37 Up +0.07 +0.46%
Chimera Investment CAPS Rating: ***
KIM $27.99 Down -0.05 -0.18%
Kimco Realty CAPS Rating: **
NLY $10.09 Down -0.04 -0.39%
Annaly Capital Man… CAPS Rating: ****