3 Reasons Why You Should Buy Lexington Realty Trust

Lexington Realty Trust is a high-yielding, diversified income play with attractive distribution growth prospects.

Jul 3, 2014 at 11:44AM

Source: Company

Real estate investment trusts are dependable income vehicles for investors who seek to build a sizable nest egg for retirement. Lexington Realty Trust (NYSE:LXP) is such a promising income vehicle and focuses on commercial properties across the United States. Lexington Realty Trust convinces with a highly diversified real estate portfolio, a straight dividend record, a low valuation and further growth potential.

1. Diversification
At the end of the day, REIT dividends are the result of a prudently managed and diversified real estate portfolio.

As such, investors should always pay close attention of whether a REIT, whether residential or commercial, has a high degree of geographic and tenant diversification. The more a REIT is diversified, the more sustainable its dividend stream is likely to be.

Lexington Realty Trust invests in single-tenant commercial properties and a variety of property types such as office, industrial, retail and others. Its most important tenant accounts for only 4.2% of base rent while its top 10 tenants account for only 27.1% of base rent. More than 40% of Lexington's revenue base originates from investment grade rated tenants.

The diversified REIT also has a large geographic footprint and is represented with investment properties in nearly every state in the United States.


Source: Lexington Realty Trust Investor Presentation 2014

Lexington's high degree of tenant, property and geographic diversification materially lowers its risk profile and supports at least moderate dividend growth.

2. Dividends
Of course, one of the main selling points of REITs is how much it pays out to shareholders on a regular basis. Lexington Realty Trust presently shells out $0.68 annually to investors which equates to a healthy dividend yield of more than 6%. And dividends are likely to increase in the future, just like they did in the past.

Lexington Realty Trust's dividend history stretches back to the early 1990s. Even though its record is not as straight forward as the dividend record of Realty Income, for instance, the REIT still offers investors attractive distribution growth prospects.

3. Low valuation
Compared to other estimated 2014 FFO multiples, Lexington Realty Trust still appears to be cheap. Pure industrial REITs trade at a relatively high multiple of 17.6 times funds from operations


Source: Lexington Realty Trust Investor Presentation 2014

On the other hand, office REITs and net lease REITs trade at approximately 15.0 and 13.4 times funds from operations respectively, but Lexington Realty Trust wins those two valuation comparison contests, too.

As part of its first quarter earnings release, Lexington Realty Trust reaffirmed its fiscal year 2014 adjusted FFO guidance of $1.11 to $1.15 per share. Based on a mid-point AFFO of $1.13 per share, Lexington Realty Trust currently trades at only 9.9 times AFFO.

Put differently, Lexington Realty Trust can currently bought at a  more than 10% AFFO yield and a 6% dividend yield leaving many other REITs in the dust.

The Foolish Bottom Line
Lexington Realty Trust is an interesting diversified income play with a lot of potential going forward.

Its low valuation makes sure, that investors get an attractive initial dividend yield of more than 6% while the real estate asset class should be doing reasonable well in an expanding U.S. economy.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Kingkarn Amjaroen owns shares of Realty Income. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information