Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Why REITs Are The Top Sector for Income Investors Right Now

Companies / Housing Stocks Jan 23, 2011 - 10:37 AM GMT

By: Investment_U


Best Financial Markets Analysis ArticleDavid Fessler writes: If you’re among the many millions of baby-boomers approaching retirement, there’s an excellent chance that you’ve focused your investment portfolio heavily towards one main investing theme: Income.

But the ballgame has changed significantly.

Not so long ago, traditional income-based investments like high-yield savings accounts, bank CDs and U.S. Treasuries were the most popular choices.

But these days, those choices are akin to dumping your money in the living room and staring at it, in hope that it will somehow multiply.

Income from them won’t even feed your pets, let alone allow for a comfortable retirement.

But here’s an investment that will – my big income idea for 2011…

REITs… Wall Street’s New Investment Gem

It’s no surprise that Real Estate Investment Trusts – better known as REITs – are quickly becoming Wall Street gems among in-the-know investors. After all, REITs boast some of the highest yields on the market and were one of the best-performing areas in the financial sector last year.

For example, the Vanguard REIT ETF (NYSE: VNQ) – which holds nearly 100 different REITs – closed out 2010 with a respectable 24% gain. That’s in stark contrast to the broader financial sector, which pretty much flat-lined during 2010.

For 2011, I expect REITs to perform in a similar fashion as last year, while churning out large dividends. Why? Cheap money…

What Makes REITs Such Great Investments?

When interest rates are low – as they were last year – REITs can make a killing. In fact, some are paying over 19% interest to shareholders.

So how do REITs offer the kind of killer returns we’re talking about?

Their business model is quite simple:

•They borrow money using low-interest, short-term securities.
•Then they use those funds to purchase high-interest, long-term assets.
•Investors pocket the difference, known as the “spread,” which can be substantial.
As long as interest rates remain low, they can continually refinance their short-term borrowings, thus boosting their profits and dividend payouts for shareholders. And the consensus is that interest rates will remain low. Here are a few key reasons why:

•Unemployment continues to hover just below 10% and will likely remain there for the foreseeable future.
•Inflation is nowhere to be seen.
•We may see more “quantitative easing” from the Federal Reserve.
In addition, REITs are required by law to distribute 90% of their taxable income to shareholders. This keeps dividend payments stable, further increasing their attractiveness to income-seeking investors.

The Top Two REITs on the Block

Having scoured the market, there are two REITs that stand out from the pack…

The first is Annaly Capital Management, Inc. (NYSE: NLY). Annaly owns, manages and finances real estate investments. Its massive portfolio mostly includes assets that it’s purchased from Fed-backed Fannie Mae (NYSE: FNM) and Freddie Mac.

And for income hunters, the company throws back an annual $2.56 per share to investors – a 14.5% dividend yield.

Even in the rough real estate climate, Annaly is faring extremely well. It’s strung together several quarters of strong results, which should keep those high dividends flowing to shareholders throughout 2011.

In addition, consider American Capital Agency Corporation (Nasdaq: AGNC). Similar in structure to Annaly, American Capital’s earnings come from investing in residential pass-through securities and collateralized mortgage obligations (CMOs).

And like Annaly, it’s safe in the knowledge that, Fannie and Freddie guarantee these securities, while some others are backed by the Government National Mortgage Association (Ginnie Mae).

You should steer clear of REITs that don’t invest in government-backed securities. They carry significantly higher implied risk, with little difference, if any, in yield.

American Capital sports a whopping 19.5% yield a $5.60 per share payout each year.

REITs: Giving Your Portfolio a One-Two Punch

It’s also worth keeping in mind that while most investors are drawn to REITs for their high-income producing ability, some REITs generate healthy capital appreciation, too. That one-two punch, coupled with virtually no default risk, is compelling, to say the least.

As long as interest rates and inflation remain close to zero, REITs will continue to generate significant earnings… and monster dividends for shareholders who decide to invest in them.

If you’re looking for high income with relatively low risk, REITs could be for you.

Good investing,


by David Fessler, Advisory Panelist, Investment U

Copyright © 1999 - 2011 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


home buyer
24 Jan 11, 08:07
Fannie and Freddie

"Fannie and Freddie play a central role in our housing finance system and must continue to do so in their current form as shareholde­r-owned companies. Their role in the housing market is particular­ly important as we work through the current housing correction­. The GSEs now touch 70 percent of new mortgages and represent the only functionin­g secondary mortgage market. The GSEs are central to the availabili­ty of housing finance, which will determine the pace at which we emerge from this housing correction­. ...

OFHEO has reaffirmed that both GSEs remain adequately capitalize­d. At the same time, recent developmen­ts convinced policymake­rs and the GSEs that steps are needed to respond to market concerns and increase confidence by providing assurances of access to liquidity and capital on a temporary basis if necessary.­"

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules