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Is the Fed Enough to Save These Beat-Up 7%-16% Yields?
Brett Owens
9 min read

In This Article:

Real estate is great, except for the heavy time commitment, which makes it a non-starter for me.

Enter real estate investment trusts (REITs), which let us invest in not one or two buildings, but usually dozens or even hundreds, for as little as $20 per share or so. Plus the yields can be even better than the fourplex that would ruin my life down the street.

Dividends of 7%, 12% and even 16%. All with a simple ticker that we can tap in from our phones. Now we’re talking. Part of retiring on dividends is never having to field a phone call!

Believe it or not we have Congress to thank. Our fearless lawmakers wrote REITs into existence in 1960. In true D.C. style, they shoved it into an amendment in the Cigar Excise Tax Extension. But we won’t complain about the pork when it is served to us retirees!

The law that brought REITs to life also declared that these businesses would receive a massive federal tax break if they dished big dividends. The loophole? REITs would be tax-advantaged so long as they paid out at least 90% of their taxable income to us, the shareholders.

As great as REITs are, however, they don’t go up in a straight line. I pointed out a few months ago that REITs had simply refused to join 2024’s rally, thanks at least in some part to the Federal Reserve refusing to cut rates as quickly as Wall Street expected.

That Was Then

Since then, of course, the economy showed enough signs of cooling that a Fed cut practically became a given—and indeed, in September, our central bank kicked off its cutting cycle with a weighty half-point reduction.

This Is Now

That’s a fantastic turn of events for anyone who used REITs’ prolonged slumber to buy in earlier this year. But I also said:

That’s great news for contrarians who still have some cash to put to work. We want to buy before the Fed finally triggers a stampede in REITs—not after.

So, are we out of time? Are would-be buyers who didn’t pull the trigger doomed to sit on the outside looking in?

Not necessarily.

We need to be a little more discerning, especially where value is concerned—we can’t just blindly throw a dart and hit a bargain like we could a few months ago. And yields in the REIT sector have indeed come down.

But as the following five picks show, we can still lock in phenomenal yields of between 6.9% and 16.2% today.

Let’s start with Armada Hoffler Properties (NYSE:AHH) (AHH, 6.9% yield), the only sub-7% dividend of the group. This diversified REIT owns 73 properties—48 retail, 14 office and 11 multifamily—throughout the Mid-Atlantic and Southeast. But that belies the importance of office to the portfolio. While office real estate makes up just 19% of AHH’s property account, it accounts for 33% of property net operating income (NOI).

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