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Why VEREIT Stock Dropped More Than 10% in September

By Jennifer Saibil – Oct 3, 2021 at 3:11PM

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The stock price drop presents a buying opportunity.

What happened

VEREIT (VER) stock, which was up 43% year to date as of Sept. 1. tumbled in September, losing 10% of its value, according to data from S&P Global Market Intelligence. There was no specific news related to VEREIT during the month, but many REITs took a hit as the Federal Reserve considered raising interest rates.

A couple smiling at each other and holding shopping bags and coffee in front of a storefront.

Image source: Getty Images.

So what

VEREIT is a REIT, or real estate investment trust. REITs are structured in a way that compels them to issue 90% of their income as dividends, and they are often coveted dividend stocks. The company is merging with leading REIT Realty Income (O 1.16%) to create on of the biggest REITs in the world. 

Both sets of shareholders approved the merger in August, with VEREIT shareholders set to receive 0.705 of Realty Income's outstanding shares for each of their VEREIT shares. That means that until the merger is completed, VEREIT's share price will be directly related to Realty Income's. Realty Income stock lost 17% of its value in September.

REITs as a category did particularly well during the first half of the year, with the S&P U.S. REIT index up 37% through Sept. 1. There were several factors contributing to that rise, including a rebounding economy that favored real estate owners, and supply chain shortages that contribute to high construction costs, putting existing real estate in a better position.

While the overall sector is still up 22% year to date as of this writing, it was down 7% in September. The Federal Reserve indicated that if inflation continues to be a problem, it would probably begin to raise interest rates. This concerns REITs because REIT investors typically expect a higher dividend yield from these investments than from a Treasury bond. Since dividend yields have an inverse relationship with stock prices, that will force the price down.

Now what

VERIET and Realty Income are both strong REITs with a high dividend yield. Realty Income's yield had been falling as the price rose, and it's now back up to 4.28%. Investors who are interested in a stable and high-yielding dividend stock should consider buying shares of Realty Income, especially at it's attractive low price and high yield.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

VEREIT Stock Quote
Realty Income Stock Quote
Realty Income
$63.44 (1.16%) $0.73

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