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 wouldn’t be such a bad thing for REITs. Their special tax status might actually be appreciated again.
REITs also offer a unique risk/reward profile that doesn’t always perfectly correlate with stocks or bonds because real estate is an asset class that’s not directly tied to traditional markets. REITs can bolster your portfolio when markets take a plunge.
For example, during the dot-com recession, REITs were up every single year from 2000 to 2002; by contrast, stocks were down every one of those years.
Historical returns aren’t bad, either. Over the past 20 years, REIT’s total return performance has beaten the performance of the S&P 500 as well as the Russell 1000 (large-cap stocks), Russell 2000 (small-cap stocks), and Bloomberg Barclays (U.S. aggregate bond).
In today’s trade, we’ll focus on a retail REIT with stellar portfolio growth that should help boost revenue long-term. Keep reading to learn more.
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Store Capital (STOR) is a net-lease REIT that invests in single-tenant properties primarily across the quick service restaurant, health club, childhood learning, and auto repair sectors. Its portfolio, which was 99.6% occupied as of 2020’s third quarter, consists of 2,587 properties leased to 511 tenants and spread across 49 states. And it’s a rare REIT in that it has Warren Buffet’s seal of approval.
Portfolio growth helped fuel 6% revenue gains and 3% FFO (funds from operations, a critical profitability metric for REITs) per share growth in 2020. Store Capital collected 73% of contract rents and interest during the June quarter, rising to 90% by October.
The portfolio is valued at $9.3 billion, approximately 11% above the REIT’s market capitalization. The remaining lease terms averaging 14 years with fewer than 3% of leases scheduled to expire within the next five years gives the portfolio excellent stability.
Store Capital has been a vigorous dividend grower among high-yield REITs, improving its payout by more than 40% since its 2015 IPO. The dividend growth doesn’t appear to be stopping anytime soon. In fact, the company recently raised its annual dividend yield to $1.44 (3.98%). This is a dividend you can trust, too, given an extremely conservative payout ratio averaging 70% of FFO over the past five years.
Where to invest $1,000 right now...
Before you consider buying Store Capital, you'll want to see this.
Investing legend, Keith Kohl just revealed his #1 stock for 2022...
And it's not Store Capital.
Jeff Bezos, Peter Thiel, and the Rockefellers are betting a colossal nine figures on this tiny company that trades publicly for $5.
Keith say’s he thinks investors will be able to turn a small $50 stake into $150,000.
Find that to be extraordinary?
But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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