Are these the best REITs to buy in May 2022?
May 9, 2022
A REIT is a "Real Estate Investment Trust" that allows investors to invest in "income-producing real estate" and receive a portion of the income - it trades identical to stock. They tend to have relatively large dividends, making many investors see them more like bonds than stocks.
Conventional wisdom is that real estate is a good investment during high inflation. Reality is a bit more complicated since it implies that they can combat inflation by raising rents.
If the economy slows, it may be difficult for property owners to continue to raise rates – especially within the office and mall rental space, where vacancy is already historically high due to remote working and changes in buying habits.
That is an essential aspect of REITs – there are many different flavors, each with its own theme in the expertise of investing in property . Some invest in senior housing (CTRE), cell towers (AMT, CCI), mobile parks (SUI), and single-family homes (O), among other themes.
Here are a few:
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The iShares Trust iShares U.S. Real Estate (IYR) is often the first choice for traders looking to play REITs. Instead of being specific and confined to a single property theme, it goes for breadth – it is comprised of 90 individual REITS—an average of $875 million worth of stock trades a day. The top 2 of the three most prominent positions are in cell tower property (AMT and CCI).
Its current yield is 2.4%. We can accentuate this even further by writing calls against the stock. Look at the 104 call, which has an approximate delta of 30. By selling the June call for $1.70, we are providing roughly a 3.9% increase in the cash-flow or a 2.4% Div. Yield + 3.9%.
= Credit Received / Stock Price x 365/Days Until Expiration
= 1.70 / $99.83 x 365/40
= 15.5% annualized increase in the cash-flow by consistently selling the call.
This covered call cash-flow provides a buffer against additional downside risk.
Another attractive REIT is Prologis (PLD), the country’s largest operator of e-commerce fulfillment centers. Customers include Amazon and Pepsi, along with 5,000 other customers. The dividend yield on PLD is currently 2.33%. This REIT has gotten hit with the decline of AMZN – but it is still up 20%+ for the year.
A 3rd interesting REIT is EQIX – one of the biggest data center REITs in the world. The dividend yield is 1.81%, smaller than many of the others on this list. The options markets are relatively thinly traded, but it does trade an average of $400 million per day.
For more information on this strategy and others, be sure and subscribe to Cherry Picks (www.tastytrade.com/cherry-picks).
For more REIT trading ideas, check our list of the top 10 REITs to watch in 2022.
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