Reader TWoK brings up a good point of earning 7.6% in dividends in a REIT called Senior Housing Properties Trust traded as SNH on the market. Now the previous article was just about dividends from partial ownership of a publicly traded company. Today we will talk about trusts that own and manage property. This security is called a real Estate Investment Trust or REIT. This is a way to become somewhat of a landlord without the hassle of flipping houses, shaking down deadbeat tenants for rent, and getting your hands dirty. You don’t have to be a sucker and watch these losers try to sell you on their system:
Plenty of ETFs out there dealing with REITs, and three on the Schwab OneSource. There is also an incomplete list on Wikipedia. A quick screen resulted in 15 individual REITs that exceed 6% on a 5 year adv.
There are 10 Classes of supply for the military that keep everything nice and tidy so you can appreciate the 11 Sectors of industry developed in 1999 by MSCI and Standard & Poor’s (S&P) for use by the global financial community. Every major company that is publicly traded is categorized with this method. Why REITs are such a hot topic now is because in 2014 they proposed REITs as a new sector, and after the close of trade on Aug. 31, 2016, Equity REITs and other listed real estate companies were transferred from the Financials Sector of the Global Industry Classification Standard (GICS) to a new Real Estate Sector.
This sector isn’t even a year old! Think back to ‘The Graduate’ when he was given the advice to go into plastics, a new industry. Or even the advice to go into biotech or e-commerce. These REITs are often sold to investors as a hot new sector that you can get in the ground floor of, despite being around since 1960 when they snuck it into the Cigar Excise Tax Extension. Don’t get too caught up in the hype, REITs are just the sexy buzzword of this year!
Keep in mind since these are publicly traded trusts, they are already included in the S&P 500 because the index must represent all 11 sectors. A list of these companies you already own with C and S Fund are shown here. Notice how Senior Housing Properties Trust (SNH) was added on 12/18/2009 to the S&P 400 Index of MidCap companies. If you were invested in the S Fund of TSP or even the VTI ETF you got a tiny little piece of that 7.6% dividend. You can always increase your position to capture more of that, but I’m all about total portfolio diversity here.
How these things work is shares of the trust are sold to raise money for the trust. The trust then use the money to buy and manage property. The law forces 90% of profits of the trust to be distributed as dividends to the shareholder. This is unlike a company can say no dividends like BRK.A, or no voting like those assholes at Snap Chat for share holders. The trust collects rents or sells property and 90% of that profit is split up to all the shareholders. Something like Senior Housing Properties Trust has retuned an impressive 7.6% in dividends last year.
Now how do you pick a good REIT? I have no idea because I am in the business of teeth and not how to run a real estate empire. With so many sub categories of the REIT sector such as apartments, hospitals, hotels, industrial facilities, infrastructure, nursing homes, offices, shopping malls, storage centers, student housing, and timberlands there is no way to tell what will be hot in the future. Could you imagine owning a mall in the time of Amazon and Otaku Culture? Not going to have too much growth. I am pretty happy with my tiny position in the F and S fund, not ready to throw more money into it just yet.