Co-authored by Treading Softly
As we wind down the year, the barrage of “can’t-miss” deals and events intensifies. Holiday shopping, gatherings, and the year-end hustle and bustle are in full swing. Amidst all the hoopla, who reaps the most rewards? Financial institutions and landlords stand tall as the year winds down. While the former profit from increased spending, exchange fees, and banking-related charges, landlords benefit from unwavering rent payments regardless of consumer whims.
Amidst this market scenario, there are two rock-solid avenues to invest in these lucrative sectors to rake in substantial returns. Let’s explore these game-changing investments that promise a bountiful income for years to come.
Here’s a closer look at these golden opportunities:
Pick #1: BTO – Yield 9%
People have a knack for assuming that the current state of affairs will persist indefinitely. However, the only thing constant is change. A prime example of this is interest rates. In 2021, the prevailing belief was that interest rates would remain at 0% forever. Fast forward two years, and the predominant concern is the possibility of high or rising interest rates. This shift has exerted immense pressure on financial investments, especially those reliant on interest spreads.
Today, the yield curve is “inverted”, meaning short-term borrowings bear higher interest rates than long-term ones. This spells trouble for companies accustomed to borrowing short-term and lending long-term – banks being a prime example. The John Hancock Financial Opportunities Fund (BTO) is a closed-end fund primarily invested in banks. Despite their shared decline with the market in 2022, banks faced further turmoil in early 2023 following the failure of Silicon Valley Bank. This sent shockwaves across the market, triggering fears of another financial meltdown.
However, this anticipated catastrophe failed to materialize, and banks emerged comparatively unscathed. Yet, their stocks failed to rebound, grappling with negative sentiment in addition to escalating Treasury rates and an inverted yield curve.
I personally anticipate an oncoming recession. The question on everyone’s mind is whether this downturn will resemble the dot-com bust or the Great Financial Crisis. Notably, the dot-com collapse mirrored the current situation with high 10-year Treasury rates and an inverted yield curve, followed by a plummeting 10-year Treasury and steepening yield curve post an interest rate cut by the Federal Reserve.
This transformation proved highly favorable for banks, facilitating a robust recovery as market indexes nosedived. Even amidst the dot-com debacle, banks proved to be the only ray of hope in a sea of red. Given their potential upside in a tumultuous market, BTO emerges as an attractive portfolio inclusion in the event of a 2024 recession.
Pick #2: O – Yield 5.5%
With the market indicating a high likelihood of interest rate cuts by the Fed next year, Realty Income Corporation (O) has witnessed a price surge from its lows, akin to several other REITs. Real estate companies like this are known for leveraging their assets substantially, with a leverage ratio of 5.3x.
Fear Not the Tumultuous Market: Investing in Real Estate Isn’t What It Used to Be
The recent unpredictability in the market has left many investors feeling apprehensive about their next move. However, amid the chaos, there is one steadfast force that has managed to weather the storm: real estate investment trusts (REITs). Despite concerns over high debt/EBITDA ratios in various sectors, REITs like Realty Income Corporation (O) have proven to be a beacon of consistency in the face of rising interest rates and market volatility.
### A Proven Track Record
Realty Income Corporation (O) has seen it all – from high interest rates to low ones, from booming economies to recessions and depressions. In fact, O has paid 640 consecutive monthly dividends, totaling an impressive 53.3 years of unwavering monthly payouts. Even when the market panics and interest rates surge, O stands firm, proving itself as a trustworthy investment option.
### Deals of a Lifetime
As the market shies away from REITs in the wake of interest rate hikes, investors are presented with a golden opportunity. With O trading at its lowest valuation since the Global Financial Crisis, it’s as if a door to a treasure trove has swung open. In fact, O’s current valuation mirrors that of 1997, despite boasting a much stronger credit rating and higher growth per share than it did back then.
### Thriving in Times of Change
Far from stagnation, O continues to thrive and expand its reach. By strategically acquiring other net lease REITs like VER and Spirit Realty Capital (SRC), O has further solidified its position as the largest net lease REIT in the industry. Notably, the recent acquisition of SRC is projected to contribute an immediate 2.5% growth in AFFO/share, highlighting O’s sustained momentum and strategic decision-making.
### A Beacon in the Sector
Unquestionably, O has positioned itself as a trailblazer in the net lease REIT sector, setting a standard that competitors can only aspire to match. And with its scale and efficiency, O has proven its ability to absorb and integrate competitors with ease, leaving investors with little reason to look elsewhere.
### The Power of Income Investing
In an era of market unpredictability and rapid fluctuations, the ideology of income investing stands tall, offering a sense of stability and assurance. As the creator of the Income Method, the proponent behind this investment principle emphasizes the importance of focusing on a reliable, sustainable, and dependable income stream for retirement, shielding it from the whims of an unpredictable market.
Amidst the uncertain landscape of the financial world, the time has come to embrace the tranquility that real estate investment offers. The time has come to invest not for growth, but for the steady flow of income that real estate can provide. In this turbulent market, the beacon of steady income in the form of Realty Income Corporation (O) shines brightly, guiding investors through the stormy seas, allowing them to cast aside their fears and rise above the tumultuous market. After all, why merely survive when you can thrive, collecting a steady stream of income month after month?