One thing is for sure, anybody looking for income ideas certainly isn’t looking at U.S. Treasury debt. With the 30-year bond hitting almost the lowest yields ever, investors looking for ideas to generate income with at least a modicum of safety have few alternatives. A new research note from Baird includes a real estate investment trust (REIT) portfolio of solid stocks that have the qualifications the Baird analysts are looking for.
The Baird team’s REIT portfolio stocks must be Outperform-rated companies within Baird’s coverage universe. They must have average or lower risk suitability, a dividend yield at least 1.5% above the current 10-year Treasury yield (which closed Tuesday right at 1.80%) and an adjusted funds from operations payout ratio for 2015 under 100%.
Here are the five highest yielding REITs from the Baird REIT portfolio. It is important to keep in mind that REIT distributions may include return of capital.
Armada Hoffler Properties Inc. (NYSE: AHH) is classified in the diversified category by the Baird analysts. The company is a full service real estate company with extensive experience developing, building, owning and managing high-quality, institutional-grade office, retail and multifamily properties in attractive markets throughout the Mid-Atlantic United States.
Armada investors are paid a generous 6.1% distribution. The Baird price target is $12, and the Thomson/First Call consensus target is $11.50. Shares closed trading on Tuesday at $10.43.
Franklin Street Properties Corp. (NYSE: FSP) is in the office properties subsector. The company primarily invests in institutional-quality office properties in the United States. Its strategy is to invest in select urban infill and central business district properties, with primary emphasis on our top five markets of Atlanta, Dallas, Denver, Houston and Minneapolis. It seeks value-oriented investments with an eye toward long-term growth and appreciation, as well as current income.
Franklin Street investors receive a very nice 5.7% distribution. The Baird price objective is $14, and the consensus price target is $13. The closing price on Tuesday was $13.26.
STAG Industrial Inc. (NYSE: STAG) makes the grade in the industrial category at Baird. The company is focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. Its portfolio consists of 248 properties in 36 states with approximately 47 million rentable square feet.
STAG investors are paid a 5% distribution. The Baird price objective is $29, and the consensus target of $26.42 is closer to the price at the close on Tuesday of $26.15.
DuPont Fabros Technology Inc. (NYSE: DFT) falls into the data center REIT subsector. The company leases its data centers to American and international technology companies to house, power and cool the computer servers that support their critical business processes.
DuPont Fabros investors are paid a 4.6% distribution. The Baird price target is posted at $38. The consensus target is $36.69, and the shares closed on Tuesday at $36.48.
BioMed Realty Trust Inc. (NYSE: BMR) falls into the health care category. The company delivers real estate solutions for biotechnology and pharmaceutical companies, scientific research institutions, government agencies and other entities involved in the life science industry. BioMed Realty owns or has interests in properties comprising approximately 17.5 million rentable square feet. The company recently it announced it had signed a 15-year lease agreement with Illumina for a new 360,000-square-foot campus to be used for offices and laboratories at Foster City, Calif., between San Francisco and Stanford University.
BioMed investors are paid a 4.3% distribution. The Baird price target is $26, the consensus target is $24.08, and shares closed Friday at $24.17.
While clearly a step up the risk ladder, these top REITs have consistently paid distributions and offer investors a diverse choice of business silos to choose from. They make good sense for income and growth investors with a degree of tolerance for volatility.