Want a 7% Yield? You Can Find It Here

KIMCO Realty If you are on the hunt for yield, take a closer look at Kimco Realty’s preferred shares.  The owner/operator of North America’s largest portfolio of shopping centers has four classes of preferreds, with yields as high as 7.137%.  Here’s a closer look at Kimco Realty and its preferred shares outstanding.

Company Overview

  • 123 million square feet of leasable space across 841 properties.
  • Properties in 42 U.S. states, Puerto Rico, Canada, and Latin America
  • As of the December 12, 2013 Investor Day Presentation, Kimco Realty’s occupancy rate was 94.1%.  The following slide (from a different presentation) shows the occupancy rate from 1991 through Q3, 2013:

Screen shot 2014-01-06 at 9.58.08 AM

  • Among others, tenants include The Home Depot, Wal-Mart, Bed Bath & Beyond, Best Buy, Safeway, Costco, Dollar Tree, Kohl’s, and TJX.
  • The following slide from its aforementioned 2013 Investor Day Presentation (linked above) addresses the question of Kimco’s vulnerability to growing online sales:

Screen shot 2014-01-06 at 9.59.30 AM

  • As the slide below shows, the median household income in Kimco’s key U.S. territories (by leasable area and rents) is 11% higher than the U.S. average.

Screen shot 2014-01-06 at 10.00.26 AM

 

Security *Ticker Symbol **Current Yield **Recent Price ***Callable On or After Prospectus
Class H KIM-H 7.137% $24.17 8/30/2015 Here
Class I KIM-I 7.058% $21.252 3/20/2017 Here
Class J KIM-J 6.927% $19.85 7/25/2017 Here
Class K KIM-K 6.993% $20.11 12/7/2017 Here

*Symbol varies depending on broker. Using Class K as an example, may be KIM prK, KIM/PK, KIM-PK, etc.
**As of January 3, 2014
***Callable at $25 – Can be called earlier in order for the company to preserve its status as a REIT

In closing, let me address a few questions you may have:

1. Are the dividends paid by these preferreds considered “qualified dividend income” for tax purposes?

It is my understanding that the dividends of the preferred stocks mentioned in this article are not considered “qualified dividend income” for tax purposes. If you decide to purchase any of the preferreds, spend some time considering the merits of owning REIT preferreds in a tax-advantaged account (such as an IRA).

2. Aren’t these relatively illiquid securities?

Yes, these are relatively illiquid securities. Keep in mind that just because there are wide bid-ask spreads does not mean you must accept the offer price.  Over the years, I’ve had surprising success getting buy orders filled at the bid price. Intuitively, it can make sense that I would have such success in illiquid securities. If someone else wants out of his or her position, that person needs to find a buyer. If you are willing to buy and let your intentions be shown to the market via a buy order placed at the bid, a willing seller may see that new liquidity and jump at the opportunity to get out.

3. Should I be concerned about the fact that there is no maturity date?

As someone who is content with timeless exposure to preferred stocks, and as someone who manages personal liquidity in a way that ensures preferred stocks would not need to be sold at an inopportune time, I am not concerned by the perpetual nature of these securities. Your situation may be different, and I certainly understand why the lack of a maturity date would cause some investors to shy away from these preferred stocks.

More from The Financial Lexicon:

The 5 Fundamentals of Building a Retirement Portfolio
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