Real estate investment trusts (REITs) are one of the
market’s best sources of high yield. But they can also be one of its searing
sources of heartburn.
For your sanity’s sake, and for the good of your retirement
savings, avoid the five high-yielding REITs I’m going to warn you about today.
Then reinvest that money into the sure-fire 8% yielders I’ll highlight after
that.
REITs are set up, by design, to be income powerhouses.
That’s the deal. They get to evade Uncle Sam, and in return, they have to
funnel the lion’s share of their profits to shareholders. But a mandate only
goes so far – if a REIT has less cash to redistribute, simple math says you and
I suffer.
My latest warning tale comes from up north, where Boardwalk
REIT – an apartment owner across Alberta, Ontario and Quebec, among other
provinces – pulled the rug out from underneath its shareholders.
Boardwalk was a safe bet for some time, making more than 150
consecutive monthly distributions since its 2004 IPO. However, the company’s
profitability suffered amid a nearly two-year economic downturn in Alberta, and
its funds from operations (FFO) dipped so far that they weren’t keeping up with
the dividend payments.
Investors who had been paying attention were already heading
for the exits.
But buy-and-holders thinking Boardwalk was safe had their
illusion dashed in November 2017 by a 56% cut to that monthly dividend.
I've been a long-time holder of Annaly (NLY). I've held it for so long that it's become one of my major passive income contributors.
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