Recent Buys – REITs and Rail Roads

I had almost $200K of investment but my annual dividend would barely breaking $3000, so I set out to improve the yield. The best way to improve it to invest in high yield dividend paying stocks or REITs

Why REITs? Is it good with the interest rate increase? What are the risk?

1. REITs are slowly going to correction ranging from 10-20% decline YTD.

2. Data more often than not shows REITs would increase overtime.

Let’s look at the historical data:

PRE-MODERN REIT ERA — 1972 TO 1992 The pre-modern REIT era was characterized by fewer, smaller REITs that were essentially passive owners. This era saw four periods of dramatic and sustained increases in the Fed Funds rate. REITs experienced a positive return in two of these periods and negative returns in the other two

Period 1: 1972 to 1974 – Decrease – During this period, the Fed Funds rate increased from 3.3% to 12.9% and REIT returns were dismal. REITs including dividends were negatively correlated with the increase in the Fed Funds rate, losing 39% of their value.This, of course, corresponds to the 1974 bear market, which up until now, was the worst downturn since the depression.

Period 2: 1977 to 1981 – Increase -This was the Volker Squeeze. Interest rates made any financed transaction essentially impossible, as turbulent monetary and fiscal policy, end of the Vietnam War, a massive recession, an oil shock, and a paralyzed government (sound familiar?) All contributed to a spike in the Fed Funds rate from 4.6% in 1977 to 19.1% in 1981. During these turbulent times, REITs including dividends were positively correlated with rate changes and gained 110%. 

Period 3: 1983 to 1984 – Increase – During this period, the Fed Funds rate increased from 8.5% to 11.6%. REITs including dividends gained 23%

Period 4: 1986 to 1989 – Decrease –  During this period, REITs including dividends lost 3.3% as the Fed Funds rate increased from 5.9% to 9.9%.

MODERN REIT ERA — 1993 TO PRESENT The modern REIT era began in 1993 when the Umbrella Partnership (UPREIT) was codified, allowing large real estate companies with low-basis assets to access the public market in a tax-efficient fashion. This unleashed the market we now see with larger, vertically integrated, professionally managed real estate operating companies. These companies have more sophisticated capital raising and allocation models, and are typically more adaptable to changes in credit conditions. Most publicly traded REITs around today were not formed before 1993.

Period 5: 1993 to 1995 – Increase – The Fed Funds rate increased from 2.9% to 6.1% during this period, and REITs including dividends gained 21%

Period 6: 1999 to 2000 – Increase – The Fed Funds rate increased from 4.6% to 6.5% during this period, and REITs including dividends gained 17%.

Period 7: 2004 to 2007 – Increase – The Fed Funds rate increased from 1.0% to 5.3% during this period, and REITs including dividends gained 99%.

Why Rail Roads?

Date	Number	Company	Price	Total	Yield on Cost	Dividend/share	Yearly Dividend
6/24/2015	20	BXMT – BLACKSTONE MORTGAGE TRUST INC	28.9499	($579.00)	7.10%	2.08	41.6
6/24/2015	10	DRI – DARDEN RESTAURANTS	71.1	($711.00)	3.20%	2.2	22
6/24/2015	10	DD – DU PONT E.I. DE NEMOURS AND COMPANY	66.349	($663.49)	2.80%	1.96	19.6
6/24/2015	4	NSC – NORFOLK SOUTHERN CORP	90.0699	($360.28)	2.60%	2.36	9.44
6/24/2015	20	STWD – STARWOOD PROPERTY TR INC	22.64	($452.80)	8.40%	1.92	38.4
6/24/2015	10	UNP – UNION PACIFIC CORP	98.26	($982.60)	2.20%	2.2	22
6/24/2015	10	WPC – W P CAREY INC	61.34	($613.40)	6.10%	3.82	38.2
				($4,362.57)			191.24

DRI –  Darden Restaurants, Inc. owns and operates full service restaurants in the United States and Canada. It operates restaurants under the Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s, and Yard House brand names. As of July 28, 2014, it owned and operated approximately 1,500 restaurants. The company was founded in 1968 and is headquartered in Orlando, Florida. It will spin off the physical restaurants into REITs. BAC and JPM doesn’t like the fact the REITs will lease back to the ailing restaurants chain. Stock was back to the price prior to the announcement. So I seized the opportunity to buy. The REITs will diversify once the spin-off is consolidated.

DD – The struggling company  operates as a science and technology based company worldwide. The company’s Agriculture segment, Electronics & Communications, Industrial Biosciences segment ,Nutrition & Health segment Performance Chemicals, Performance Materials, Safety & Protection segment, collaboration agreement with JinkoSolar Holding Co., Ltd. The company was founded in 1802 and is headquartered in Wilmington, Delaware. It will spin off its chemical segment with sticker symbol CC Chemours. Wall Street dislike the break-up, citing CC will carry a bunch of dividend that is not sustainable, as the result the company will be force to decrease dividend. DD to me is like AA and HAL back in the 1990s and 2000s. It broke up with PM, etc. And all of the businesses skyrocketed when after the break up. And dividend payout was business as usual. I bought DD because stock has plummeted from $80 to $66 or – 17.5%. I figured this would be a good entry point.

WPC – REITs Dividend Mantra’s analysis for WPC and more indepth here – I didn’t buy immediately at the time, but the stock has been down 20% from its high. The correction has begun. I don’t know when it would bottom out, but initiate buy would be the first step.

UNP and NSC – both railroad companies cover 2/3 of America rail road transportation. Wait, am I playing monopoly here? Nah!! I when Elon Musk figured out how to get high speed train and railroad for America. That’s when the America will get the upgrade, in the meanwhile they will continue to chug along as the republicans will not support any government backed plan to upgrade new railroads. Analysis are done by Dividend Mantra and My Dividend Growth

STWD – REITs will break itself up, introducing a new sticker symbol HOT Vistana Signature Experiences for its timeshare business. STWD has been down 10% from its high. I initiated a position. Analysis are done by Dividend Dream and Zero to Zeros.