The Fed just raised interest rates by 0.75%, its
biggest rate hike since 1994.
Whether that satisfies the market or there’s more bad
news to come remains to be seen.
In the meantime, apartment rental rates, already up
almost 20% vs. year-ago, appear to still be on the rise.
Thus, profits, already up, are likely headed higher
for apartment building owners. Here’s the good news: you can share
in apartment building ownership via Real Investment Trusts (REITS).
REITs Are Special
REITs are a special type of corporation that invests
in real estate. There are two major categories of REITs; Property
REITs and Mortgage REITs. Today, we’ll focus on Property REITs that
own apartment complexes.
Look at These Dividends
Several pay dividends equating to substantial 4% to
7% annual yields. But since they’re required to pay 90% of taxable
income to shareholders, rising rents are likely to translate to
future dividend hikes. even though share prices might turn
summersaults.
Zacks Screener Finds Hot Payers
I used Zack’s Investment Research’s free stock
screener to find apartment REITs worth considering. I’ll give you
the list in a minute, but first I’ll describe how I set up the
screen so that you can run it yourself.
From
Zacks homepage (www.zacks.com), select Screening and
then Stock Screener. My screen uses five different stock selection
rules. Zacks organizes its available selection rules into categories
such as Company Descriptors, Valuations, etc.
Here Come the Details
Start with “12 Weeks Percent Price Change” and
specify “-15” to limit your results to stocks that have dropped at
least 15 percent over the past 12-weeks. Here’s how you would
specify that rule (Price & Price Changes category): “% Price Change
(12 Weeks) <= -15”
Stocks Analysts Like
Stock analysts rate the stocks that they follow into
various gradations of “buy,” “sell,” or “hold.” Zacks compiles those
ratings using a numerical scale: Strong Buy = 1, Moderate Buy = 2,
Hold = 3, Moderate Sell = 4, and Strong Sell = 5. I limited the list
to “buy” or “strong buy” rated stocks. In the Broker Rating and
Changes category, specify 2.0 or lower (<=2.0) for Current Average
Broker Recommendation.
Avoid Cheap Stocks
Although we’re looking for beaten down stocks, the
lower the trading price, the riskier the stock. Use the Last Close
rule (Prices & Price Changes) to limit your results to stocks
trading at $10 or higher (>= 20).
Bigger Is Better
Market capitalization, a measure of company size, is
the total value of all of a firm’s outstanding shares. Market-caps
range from as low as $30 million or $40 million to as high as $500
billion. Similar to the reasoning for share prices, stocks with very
low market-caps are riskier than bigger stocks. Specify a minimum $1
billion market-cap (>=1000) to rule out the riskiest plays.
Focus On
Residential REITs
Finally, using the Industry selection rule (Company
Descriptors), select “REIT-Equity Trust – Residential.”
Here are the three REITs that
my screen turned up.
•
Amanda Hoffler Properties (AHH), pays dividends equating to a
5.3%yield.
•
Apartment Income (AIRC), pays a 4.6% dividend yield.
•
Spirit Realty Capital (SRC), pays 7.0%.
As always, consider the results of any screen as
research candidates, not a buy list. The more you know about your
stocks, the better your results.
published
6/21/22
