#137 - Passive DRIP Investing With High Dividend Yield REITs
Hey everyone, Kirk here again and welcome back to the daily call. On today’s daily call, I want to talk about passive drip investing with high dividend yield REITs. This is something I guess near and dear to my heart because I used to be in the REIT industry. I was a REIT analyst outside Washington DC for a little while. And so, for REITs, I understand the business emphatically. I was in the business, I used to cover that business as a research analyst and I think it’s a good business when you want to get into some sort of stable or corporate bond type real estate investing. Why do I say that? Because in most cases, REITs… And although there’s a lot of variety of REITs… REITs by the way are Real Estate Investment Trust. In most cases with REITs, you can get into what are called triple net REITs which are basically REITs where all of the assumption of risk as far as taxes and maintenance and upkeep on the property is handled by the tenants. An example of this might be that a real estate investment trust or a REIT might come in and buy a Walgreens. They’re not actually physically buying the Walgreens company, but they’re buying the land and the building and the structure that the Walgreens is sitting on. But they might then sign a triple net lease with Walgreens itself on the corporate level, not on an individual location level, but it would be a corporate guarantee basically that Walgreens would just pay them a straight up rent amount, but all of the associated taxes and insurance and maintenance on the property would be maintained by Walgreens. The efficiency of a REIT is that you can generally have a lot of people who are… You can have a small amount of people who are investing a lot of capital without a lot of additional manpower, a lot of additional teams that need to be involved because everything’s handled by individual tenants on a location by location basis. And so, what this basically is, is it basically become an essence of corporate bond with real estate attached to it. If you think about it that way, it’s a really interesting type of product and it has a lot of tax favorable advantages for investors. What’s cool about REITs I think not in particular right now because I think yields are okay. I think most of the REITs right now are 4% to 5% range right now which is nothing to obviously turn your head away from. But I think that in the future, we may see REIT yields come back up to somewhere around the 6%, 7% range and if it does, I think that’s a more attractive entry for most long-term investors. If you can get into some of these REITs at a 6%, 7% yield with their dividends, some of them are paying monthly, some are paying quarterly or annually investment payments and generally, those payments have a stable steady line base and have very good annual increases or monthly increases in their payout. I think the trick with REITs is getting it at a pretty good level and really riding it out for a long-term haul and it's got to be maybe one portion of a long-term investing strategy for you. What I do with my wife's account because my wife has a 403B account which we can’t trade options in unfortunately, but what I do in there is I do end up buying a lot of these high dividend yield REITs and then investing or basically converting those over in a passive drip investing format. Drip investing is Dividend Reinvestment Program where some of these companies will allow you… And you have to check with your broker and the specific company that you're trading. But many of them will allow you to do what’s called drip investing. When you actually get paid a dividend, as long as that dividend is enough to cover either fractional or a full ownership of new shares, then you can apply that dividend right away to the purchase of new shares. It’s just a self-fulfilling snowball that you basically create where you collect income. As long as you don’t need that income to live off of, you reinvest it into more shares and then effectively, get more dividends, more shares, more dividends, more shares, etcetera. I like doing this in my wife’s account because it’s a long-term retirement account. We can’t trade options in it. We’re pretty much limited and I like having this stable stability in the account that I know that we’re going to have pretty much a general REIT investment in there going forward long-term. Hopefully that helps out. Like I said, I wanted to offer just a little bit of different advice today and just tell you guys what we do on that end. I think it’s a good alternative for sure if you want to put some money into REITs and start investing in there. Obviously, check them out. There’s a lot of different types of REITs. They’re out there. The triple net that we mentioned is a big market for that, but there’s also very specific REITs like industrial or warehouse, office space, apartments, there’s also lots of ones on like water parks and ski resorts. It’s a very cool industry to be in for sure and something that I still follow very closely. As always, hopefully this helps out. Until next time, happy trading!
