Real estate investment trusts (REITs) have seen a year-to-date increase of 9%, despite an 86% probability of Federal Reserve interest rate hikes. The ongoing debate among investors is whether to avoid or invest in REITs amid these rate expectations, as traditionally, rising rates diminish the appeal of REITs that heavily depend on dividend payouts, comprising at least 90% of their taxable income.
CTO Realty Growth (CTO) offers a 7.3% dividend yield and focuses on retail properties in growing metro areas, benefiting from a sound economy and higher rentals. In contrast, NexPoint Residential Trust (NXRT), yielding 7.8%, specializes in Class B residential properties but has historically struggled in fluctuating rate conditions. Meanwhile, Global Net Lease (GNL) has shown resilience through strategic property acquisitions and debt reduction, boasting an 8.3% yield.
For mortgage REITs, Armour Residential REIT (ARR) offers a 17.1% yield while focusing on agency-backed securities, but faces risks from rate hikes. Redwood Trust (RWT) has a 14.9% yield and operates in the jumbo mortgage sector, although it carries greater exposure to defaults. Investors are advised to carefully evaluate risks and yields in the current economic climate.
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