How You Can Make Money Off The Stores You Shop In Every Day

Real estate can be an excellent way to build wealth, but there is too much uncertainty involved with buying property. Here's a better way to play it.

Apr 2, 2014 at 11:42AM

Source: Flickr / I See Modern Britain.

When investing in real estate investment trusts, or REITs, there are plenty of choices, but those trusts specializing in retail properties like National Retail Properties (NYSE:NNN) or Kimco Realty (NYSE:KIM) offer some pretty distinct advantages. These companies provide an excellent combination of growth potential and stability, and tend to offer above-average dividend yields than many other types of equity REITs for a number of solid reasons.

Why retail REITs?
This is a broad category, as these REITs can invest in freestanding retail buildings, shopping malls, or shopping centers. All can be good options due to generally favorable lease terms, good occupancy rates, and minimum potential for unforeseen expenses.

There are two notable advantages to retail REITs' portfolios of properties. First, most of the tenants are major retailers, which are very established and stable. Second, the properties owned by the trust are leased for long periods of time (15 to 20 years) on a triple-net basis, which means the tenant pays for taxes, insurance, and maintenance or repairs on the building.

What this ultimately means is retail REITs don't have a lot of variable expenses. For instance, if property taxes shoot up one year, the tenant bears the burden, not the REIT. They also have plenty of notice before a tenant vacates, and these two factors combine to produce very consistent income for the trust. Let's take a closer look at each type of retail REIT and see which one might be a good fit for your portfolio.

Freestanding retail
Trusts that invest in freestanding retail properties generally lease their properties to nationally known tenants, which gives an added sense of stability. For instance, National Retail Properties' largest tenants include such companies as 7-eleven, LA Fitness, SunTrust, and Best Buy.

One great choice here is National Retail Properties, but most REITs of this kind offer a similar structure. The average active lease on National Retail's properties still has 12 years left on the term. This company's vast portfolio of more than 1,860 properties in 47 states makes it a excellent option if you're looking for geographic diversity.


Source: AMAPO

The trust currently pays a very nice yield of 4.78%, and it has a very good record of steady, consistent dividend raises over time. In fact, National Retail Properties is one of only 102 publicly traded companies to increase their dividend for 24 consecutive years. 

Shopping malls
Trusts investing in shopping malls can have an even stronger diversification advantage. For example, General Growth Properties (NYSE:GGP) owns about 120 shopping malls, which consist of about 125 million square feet. If each mall has 100 different retailers (a low estimate), this translates to about 12,000 individual retail spaces.


Source: LancerE

Although the company had a rough patch during the financial crisis, it has done a great job in recent years of simplifying the portfolio and focusing on its core assets. The company currently pays 2.7% per year, but profitability is rapidly improving and there is good reason to expect a significant increase in the dividend this year. REITs have to pay out at least 90% of their income to shareholders, and S&P forecasts $1.26 earnings per share for 2014; using the 90% rule, this translates to an expected annual yield of 5.2%.

Shopping Centers
Shopping centers are somewhere in the middle of freestanding retail and shopping malls, and a good trust specializing in this type of property is Kimco Realty Corp. Kimco has interests in about 850 shopping centers in 42 states.

Most of Kimco's properties are community shopping centers anchored by a discount department store or supermarket. The company's tenant base is very diverse, and no single company accounts for more than 3% of the trust's income. Furthermore, those companies contributing the most to Kimco's revenue are extremely stable and well-known. The top five tenants by revenue are The Home Depot, TJ Maxx, Wal-Mart, Sears, and Best Buy.

Kimco currently pays about 4.1% annually, and the company has done a good job of steadily increasing its income (and payout) over the past few years.

Two ways to wealth
Investing in REITs like these produce a double wealth-building effect over time. First, they produce a nice, growing income stream that compounds over time when reinvested. Second, the properties owned by the trust also increase in value, which produces corresponding gains in the value of the shares themselves. Retail REITs are one of the best ways to build this kind of wealth while maintaining a stable, low-risk portfolio.

9 more great choices for growth and income
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers