A REIT That Meets Our Criteria for Income and Safety

01/28/2015 7:00 am EST

Focus: REITS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

We've found a REIT that meets our criteria for income and safety; it yields over 7% and just might offer the safest, most secure yield in the REIT market, suggests Ian Wyatt, editor of High Yield Wealth.

We say that because this REIT focuses on what could be considered the safest, most secure market niche; government. The REIT is Government Properties Income Trust (GOV).

GOV is unique. It focuses almost exclusively on government. It owns 71 properties located in 31 states—and Washington DC—containing approximately 11 million square feet.

Tenants comprise 37 US government agencies, 29 state government agencies, and the United Nations. Ninety-three % of GOV's $245 million in annual rental income is paid by government. 

The business is simple enough. GOV scours the market for properties best suited for government use.  It then rents them to various government agencies. Best of all, it pays no income tax on the rent it receives.

Such is the benefit of being organized as a REIT. No income tax paid on the front end means more dividends paid to investors on the back end. GOV's dividend yields 7.4% as we write. 

The cash flow that maintains that high yield is here to stay. Federal and state governments are the most credit-worthy entities.

GOV has a strong history of growing its portfolio through intelligent acquisitions. Since its initial public offering in 2009, GOV has more than doubled its building count to 71 from 33. 

Rent space has also more than doubled, increasing to nine million square feet from four million square feet. The key, though, is that efficiency and return have not been sacrificed for growth. 
  
Ultra-safe tenants, high occupancy rates, and respectable yields are obvious positives. But cash is what matters, and over the years, GOV has persistently maintained a plush cushion between funds from operations (FFO) and dividends. 

Dividends have been well-covered, even as the portfolio has expanded. FFO easily covers the high payout over more shares to this day. If you're seeking a safe investment to earn a 7.4% yield, GOV is that investment.

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