The market tends toward extremes, pushing stocks up too high, and then too low. It's essentially impossible to time the tops and bottoms, but if you watch closely enough, you can find good buys on great companies.
Today, the real estate investment trust (REIT) sector is offering income investors an opportunity to buy some of its best companies at solid, though not spectacular prices. Don't miss this chance to buy the best.
A triple-net pleaser
One REIT subsector feeling the heat is triple-net lease. This group leases properties to renters willing to take on virtually all of the costs of maintaining the buildings, even including taxes! And the lease agreements are usually long term in nature, sometimes reaching the 20- and 30-year levels. So the REITs here tend to be very reliable.
Realty Income (NYSE:O) is one of the biggest players and has an impressive record of increasing its dividend (65 consecutive quarterly hikes). Although the shares were a screaming buy when they yielded over 10% during the 2007 to 2009 recession, that didn't last long. After a multi-year run that peaked in early 2013, the shares were yielding less than 4%.
Now, after a roughly 30% price drop, Realty Income yields around 5.8%. That's a fair number for one of the best players in the triple-net lease space. And with a monthly dividend, owning Realty Income is like getting a regular paycheck.
Getting "healthy" returns
Another REIT sector feeling the pinch is health care. Like Realty, health care big wig Ventas (NYSE:VTR) has seen its shares fall around 30% from their mid-2013 highs. Its yield is currently around 5.1%. Again, not a huge sum, but far better than the roughly 3.5% it offered not too long ago.
Ventas owns almost 1,500 properties across several segments, including hospitals, nursing homes, medical office buildings, and senior housing. That last sector makes up around half of the company's business. Although that may seem concerning on the surface, private payers make up a large portion of the company's overall business and shield it from the government's tinkering in the industry.
Ventas didn't increase its dividend in 2009, but otherwise it has a strong record of regular hikes. For example, it's upped the payment in nine of the last 10 years. If you are looking for more yield, however, you might consider fellow industry heavyweights Health Care REIT and HCP, which both share similar positive traits but have slightly higher yields.
Apartments for rent
Mid-America Apartment Communities (NYSE:MAA) is another name to look at. Although its dividend record isn't as impressive as those of any of the companies above, the trend is toward increasing distributions. And the shares recently yielded around 4.7%. That's up from less than 4% when the shares were trading about 20% higher in mid 2013.
The company owns almost 280 apartment communities in 14 states, giving it some 85,000 apartment to to rent out. While Mid-America hasn't increased its dividend every year, it has managed to keep its top line in growth mode, even through the recession. And the recent acquisition of Colonial Properties has increased the company's presence in the U.S. "Sunbelt," an area seeing population growth and, thus, solid rental demand.
One of the big concerns hanging over Mid-America is an improving housing market. However, the company reports that it hasn't seen any unusual uptick in renters leaving to buy or rent single family homes. That makes now a good time to look at a giant landlord with strategic exposure to growing regions of the country.
Maybe it's not the bottom
Realty Income, Ventas, and Mid-America are far from cheap, but they are, at the very least, offering income investors a compelling entry point. In fact, if you bought now and the shares headed lower, it might be a good idea to buy even more of these well-positioned industry leaders. For right now, however, you shouldn't let this opportunity go by without at least doing a deep dive.
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Reuben Brewer has positions in Realty Income, Health Care REIT, and HCP. The Motley Fool recommends Health Care REIT. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.