Duke: The King of REITs

01/24/2003 12:00 am EST


Richard Band

Editor, Profitable Investing

"Looking forward, I see reasons to believe REITs will reward investors again in 2003," says Richard Band, editor of Profitable Investing. "Dividends for most of the industry are solid, with an average yield of 7.4%. Thanks to the generous yield, the typical REIT would need only about a 3% gain in share price to roll up a double-digit return. And while the Bush tax proposals throw a wild card on the table, dividend relief would tend to make REITs more valuable."

"Our top pick this month, is Duke Realty (DRE NYSE), which owns office buildings, industrial facilities, and shopping centers in 13 cities across the Midwest and Southeast. The REIT has just passed a remarkable milestone. With the November payment, DRE has now disbursed more cash dividends since its October 1993 initial public offering than the original price of the shares. Every shareholder who bought the stock nine years ago has recovered his or her entire investment—and is now playing with the house's money. Since the IPO, Duke has boosted its dividend 102%, or roughly 8% a year. Folks, that's how you beat the rising cost of living in retirement.

"It's worth asking, of course, whether DRE can carry this great performance into the future. Chairman Tom Hefner points out that, in some respects, the company is better positioned today than it was nine years ago: ‘Our payout ratio is more conservative; our balance sheet is stronger.’ The stock is also a more compelling value. At a little over 7%, DRE's yield is roughly the same as it was in 1993. But yields on competing investments (such as Treasury bonds and bank CDs) have tumbled in the interim. If you're looking for a safe, high income, Duke is king. We recommend purchase at $26 or below. We would also note that for small investors, the company sponsors a thrifty direct-purchase plan that allows you to buy stock without a broker."

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