New Trade for December 7th, 2020

Stocks are mixed this morning with the S&P 500 and the Dow Jones Industrial Average lower, while the tech heavy Nasdaq is slightly higher.  

As president elect Joe Biden and the new administration fall into their rightful place, investors are looking to estimate policy changes that will affect the markets.  Today’s trade alert highlights one investment that will likely fare well as the Biden administration’s initiatives take hold.   

Real estate investment trusts (REITs) were an unintended casualty of the 2017 Tax Cuts and Jobs Act.  Trump’s signature tax reform lowered the corporate tax rate from 35% to 21%, which was great for traditional corporations, but it made special tax shelters like REITs less attractive by comparison.  REITs are not required to pay federal taxes so long as they distribute at least 90% of their profits as dividends.  

Joe Biden’s tax plan would raise corporate taxes back to 28% and would more aggressively tax foreign income.  It also is specifically designed to force large, profitable tech companies to pay more.  All of this bodes poorly for the stock market, but it would be a good thing for REITs, their special tax status might actually be appreciated again.  

Real estate also provides diversification.  While REITs are still stocks, they don’t always move in the same direction as the broad market.  And their above-average dividend yields are a nice shelter in a downturn.

Boston Properties (BXP) is arguably the king of office space: It owns prime properties in New York City, Boston, Washington D.C., San Francisco and Los Angeles.  It owns 51.9 million square feet and 196 properties, including Times Square Tower in New York City and the Prudential Center in Boston.  It also has 13 other properties under construction, according to S&P Capital IQ.

Office space is economically sensitive, and as the economy has slowed, so have office REITs, which have lagged the average real estate investment trust over the past year.  Indeed , BXP shares have delivered a total return of less than half the FTSE Nareit All Equity REIT Index in that time.

BXP is one of the best REITs to buy in a difficult segment of real estate.  Boston Properties’ high-quality holdings are a good place if you’re hoping the economy will rev up again — or if you simply want a stake in the nation’s hottest office markets.  The rapidly growing dividend is a nice draw too.  Currently the stock offers a 3.75% dividend yield.  

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