Dividend Detective Uncovers 2 Unusual REIT-Related Buys

03/14/2019 5:00 am EST


Harry Domash

Publisher, DividendDetective and Winning Investing

Good economic news combined with continued low interest rates, along with mixed, but mostly encouraging comments from U.S. and China trade negotiators, kept the market moving up. Recession predictors disappeared from the TV stock market pundits, notes Harry Domash, income specialist and editor of Dividend Detective.

What’s Next? Despite the happy talk, there’s probably a 50/50 chance that the U.S/China trade talks end badly. If that happens, the market could head down big time.

Also, the Mueller investigation final report will probably be made public sometime this month. What it says and its impact on stocks is anybody’s guess. Bottom line: I have no clue which way the market heads from here. So, again, be cautious. Don’t add cash to the market that you’re going to need back within 12 months. Just in case.

In our Preferred Stocks portfolio, we’re replacing one preferred currently trading above its call price and could be called later this year, with a new pick yielding 7.7% and that can’t be called until July 2027.

We’re adding Two Harbors Investment 7.625% Series B Cumulative preferred (TWO-B) to the portfolio. Two Harbors is a real estate investment trust REIT that invests in residential mortgage-backed securities, mortgage servicing rights, and related assets.

The preferreds recently traded at $24.61 per share, slightly below their $25 issue and call prices. The market yield is 7.7% and the yield-to-call (7/27/27 call date) is 7.9%.

The preferreds are not credit-rated, meaning only that the issuer did not opt to pay for a rating. Since the preferreds are cumulative, Two Harbors remains on the hook for any missed dividend payments.

We’re also adding a new pick to our real estate investment trust portfolio; it is paying 6.4% and is an investment that most analysts hate. Outfront Media (OUT), is an unusual REIT.

Instead of owning buildings, Outfront owns outdoor advertising media such as highway billboards and advertising structures on railroad platforms that it leases to advertisers and wireless carriers.

Outfront is a relatively low-risk play because analysts don’t expect much. Of the six following Outfront tracked by Zack’s, only one says “buy” and others are at “hold” which often translates to “sell.” 

Most are forecasting mid-single digit revenue and cash flow growth, but Outfront recorded 18% December quarter FFO (cash flow) growth on 13% higher revenues. So, positive surprises are possible. Current dividend yield is 6.4%.

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