The following first appeared on Kiplingers.com as The 15 Best REITs for Retirement Income
Few asset classes are better suited to retirement portfolios than real estate. If managed sensibly, a portfolio of real estate investment trusts (REITs) can provide a steady stream of retirement income that will last a lifetime.
To start, REITs are incentivized by the tax code to pay outsize dividends. REITs pay no corporate tax at the federal level so long as they distribute at least 90% of their taxable income to their investors as dividends. The U.S. corporate tax rate is a punishing 35%, so we’re talking about a lot of extra cash.
But a good retirement income portfolio needs more than just a high dividend yield. You also want rock-solid stability. If you intend to live on cash from your investments, you can’t afford to suffer a dividend cut or a major business setback. So your best REITs for retirement will tend to be moderate yielders in stable, non-cyclical subsectors. Experience also counts for a lot here – you typically want to trust REITs that have survived a recession or two with their dividends intact.
Today, we’re going to look at 15 of the very best REITs to generate long-term retirement income. You’ll notice certain areas are missing, such as malls and office buildings; these are too sensitive to economic swings, and their biggest players slashed dividends during the 2007-09 meltdown and aftermath. Instead, you’ll find 15 reliable companies that should continue paying their dividends like clockwork, come what may in the economy.
Public Storage (PSA)
Few corners of the market are as durable as self-storage REITs.
“Self-storage requires modest capital outlay to operate, property taxes are skinny and the demand is inelastic,” says Ari Rastegar, founder of Dallas-based Rastegar Equity Partners, a private equity firm specializing in commercial real estate. “The recession resiliency of the asset class was showcased in 2008 by returning 5% cumulative with dividends. Another way to look at it is investors generate the rent of a class B multi-family apartment from what is essentially a shed.”
Public Storage (PSA) is America’s largest self-storage landlord, and over its life, it has been a dividend-raising machine. The REIT has improved its annual dividend for eight consecutive years, and it was able to keep its payout stable throughout the 2008 meltdown. At current prices, PSA yields nearly 4%, which isn’t exceptionally high. But the stock has raised its dividend at nearly 16% per year over the past decade, which isn’t too shabby.
Public Storage has been down of late because of oversupply concerns, and shares have dropped nearly 25% from their early 2016 highs. However, this setback could be viewed as a buying opportunity in one of the very best REITs on the market.
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