As we approach the end of a tumultuous 2011, it's time to look back at the biggest winners and losers of the year.
So in this series, that's exactly what we're doing, sector by sector. Today, let's take a look at the biggest losers in the retail REIT sector. First, the backstory, then the results.
This year, we saw U.S. Treasuries get downgraded from AAA status while Congress played politics instead of fixing the budget; a domestic economy that has been recovering from its financial crisis in fits and starts; big trouble in Europe; and a Chinese economy that doesn't seem so bulletproof.
The daily volatility in the financial industry has been tremendous, but REITs haven't been swinging around as wildly as banks. Part of that is because European debt fears have been manifesting in bank stock volatility, but REITs have also been less volatile because of the dividend yields that are a hallmark of the sector. This is because a REIT has to pay out 90% of its taxable income in order to keep its favorable tax status.
Another thing to keep in mind with REITs is that most are heavily leveraged. As a result, any change in the Fed's actions to keep interest rates low could hurt future debt refinancings.
The 10 worst retail REIT stocks of 2011
For context, the S&P 500 has returned 1.3% after dividends this year. In other words, the market has been basically flat.
2011 Dividend-Adjusted Return
Price-to-Tangible Book Value
Pennsylvania Real Estate Investment Trust
Cedar Realty Trust
|Ramco-Gershenson Properties Trust||(16.1%)||1.0|
|Kite Realty Group Trust||(12%)||0.8|
Inland Real Estate
Source: S&P Capital IQ.
2011 hasn't been kind to these various retail REITs as the economy continues its fits-and-starts recovery. This is despite current dividend yields that span from 2.6% to 7.3%. So as you look at this list for investing ideas, remember that big dividends don't guarantee big returns.
Commercial real estate can be especially tricky in this environment, but we're seeing many of these REITs trading close to tangible book value. If you've got the time, know-how, and inclination, finding the hidden gems amid the rubble could be quite profitable. But be careful.
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Anand Chokkavelu doesn't own shares of any company 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.