Two 6% Yielding REITs from Off the Beaten Path

Never let it be said that I’m not willing to travel off the beaten path in the search for solid dividend-paying stocks. I’m especially fond of those paying 6% or more, since that’s a pretty healthy margin above U.S. inflation that’s averaged around 3 percent for the last 80 years or so.

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So, for off the beaten path, how about Minot, North Dakota, population just shy of 47,000, 116 miles from the border with the Canadian province of Saskatchewan? That’s where a fine diversified REIT by the name of Investors Real Estate Trust (IRET) is headquartered. And when I say off the beaten path, I don’t just mean geographically. IRET is followed by just five analysts and its average trading volume is about 319,000 shares – decent, but far from the million-share-plus per day of the big boys.
The company also seems to be a bit shy, as it has a habit of releasing earnings on Friday. But it’s got nothing to be shy about, with solid gains recently in FFO, net income, and a reduction in overall expense. What’s more, it’s riding a nice surge in revenue – which is no surprise, really, as it sits in the heart of the booming Bakken Oil Field. The company booked revenue of $239 million in 2012, $256 million last year, and the average analyst estimate is that it will rake in $269 million this year and $298 million in 2015.
For the record, as of October 2013, the company owned 264 properties, over 10,700 apartment units, and nearly 11 million square feet of commercial buildings, primarily in the upper Midwest. Twenty-eight percent of its assets are multi-family, 32% commercial office, 26% commercial medical, and about 7% each in commercial industrial and retail. The company has been in business for over 40 years. It currently pays annual dividends of 52 cents a share, for a yield of 6.02%, but may well be able to raise dividends over the next few years.
It’s a half-hour commute from Great Neck, Long Island, New York, to mid-town Manahattan, so it isn’t exactly the boondocks, but another attractive, low-profile REIT hides in plain site there: One Liberty Properties (OLP). It trades only about 35,000 shares a day, and is followed by just three analysts. But it’s been in business thirty years, and presently owns 109 properties across 29 states, providing it with substantial geographic diversification.
OLP deals primarily in retail properties, owning the real estate it leases out to entities such as Applebee’s (a subsidiary of DineEquity (DIN), Urban Outfitters (URBN), FedEx (FDX) distribution centers, LA Fitness, Big Lots (BIG) and Whole Foods Market (WFM). The combined market cap of all of these firms is into the billions, all generate sizable free cash flow, and thus, all make for excellent and reliable tenants. Indeed, the company’s properties enjoy 97% occupancy, with an average leasing term of eight years. Rental income vastly exceeds interest expense, resulting in plenty of cash left over for shareholders, which translates to a 6.79% yield.

About Lawrence Meyers

lawrence meyers

Larry is regarded as one of the nation’s experts on alternative consumer finance. He consults for hedge funds and private equity via his Council Member status at Gerson Lehman Group, and as a member of Coleman Research Group’s Executive Forum. He also consults for Credit Access Businesses and Credit Services Organizations in Texas. His Op-Eds and Letters to the Editor have appeared in over two dozen major newspapers. He also brokers financing, strategic investments, and distressed asset purchases between private equity firms and businesses of all stripes. You can reach him at pdlcapital66@gmail.com.

 

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