After reviewing several attractive REITs in our recent free article 60 Industrial and Retail REITs Yielding Over 4%, this week’s Weekly reviews the three REITs we actually own in our Blue Harbinger Income Equity portfolio. One is a residential REIT with a unique business model and an important competitive advantages, one is a blue chip industrial REIT with access to many prime locations, and the third is a big-dividend healthcare REIT that offers a very compelling contrarian opportunity.
EastGroup Properties (3.5% Yield)
The first REIT we own in our Income Equity portfolio is EastGroup Properties (EGP). This is a blue chip REIT in the sense that it owns properties in highly sought after industrial locations (primary locations). And despite EGP’s strong total return over the last year (+39.3%) we believe it has continued long-term price appreciation potential ahead. In fact, we are happy to endure any short term volatility this REIT may experience in exchange for the long-term earnings growth we expect it will continue to deliver. And the very safe 3.5% dividend payments make any short-term volatility easier to cope with. You can read our previous write-up on EastGroup Properties here...
Omega Healthcare (7.6% Yield):
Omega Healthcare Investors (OHI) is a skilled-nursing facilities REIT. Its returns have lagged the S&P 500 over the last year, and we believe this is due to fearful investors that have overreacted to possible regulatory changes, particularly with regards to the Affordable Care Act (worth noting, OHI’s current “short % of float” is significant at over 16%). In our view, the market is overly pessimistic, and this is a very compelling, big-dividend, contrarian opportunity. We suspect regulatory risks and concerns are significantly overblown as President Trump has recently pledged to “provided insurance to everybody” under his plan to repeal and replace the Affordable Care Act.
And it seems likely that the new administration will not reduce access to healthcare thereby shrinking the size of the healthcare pie (and the healthcare REIT pie), but rather he’ll simplify the laws, giving more control to the people and to businesses (instead of the government) and this will ultimately help skilled nursing facilities reimbursement fears abate (i.e. there will continue to be a growing market for skilled nursing facilities), and it will help Omega Healthcare’s stock price rise (due to less fear and more opportunity). You can read our previous reports on Omega Healthcare here...
New Residential (Yield 11.3%)
New Residential (NRZ) is a REIT focused on residential real estate. Specifically, NRZ invests in excess mortgage servicing rights (MSRs), servicer advances, and real estate securities. As we’ve written in the past, we believe NRZ’s unique MSR business gives it a strong competitive advantage. Despite its strong returns over the last year (its price was up over 50%) we continue to own it because of its unique access to significantly profitable, high-income business via MSRs. You can read our earlier write-ups on NRZ here...
An important note to readers…
We continue to be diversified across broad market sectors in all three of our Blue Harbinger strategies (Income Equity, Discipline Growth, and Smart Beta (ETFs only)). We believe we have identified attractive investment opportunities across market sectors, but we get comfort knowing that when one sector of the market may be declining, those declines may be offset by gains in other sectors and opportunities. Diversification is one of our core beliefs at Blue Harbinger, and we know diversification (along with keeping costs and expenses low) is a well-proven strategy for long-term success.