BALTIMORE (Stockpickr) -- What started out as a stellar year for real estate investment trusts, or REITs, has become a rough one in just a few months. Since the word "taper" entered investors' vocabulary, they couldn't unload these unique names fast enough -- but now, it looks like they've overdone it.
And that's creating a big opportunity for anyone willing to step in and buy.
It's not shocking that Bernanke and company torpedoed REIT prices by talking about tapering their unprecedented asset buying. You see, despite their usefulness as a way to get exposure to real estate in your portfolio, REITs are really purpose-built income generation machines. U.S. tax rules give REITs the ability to pass on the vast majority of their income to investors in the form of dividends, and as a result, these vehicles can sport higher yields than most conventional corporations.
So, the potential that the Fed's break-pumping will raise interest rates makes REITs look less attractive. Yes, if the Fed stops buying treasuries, it's very likely we'll see yields rise -- but the notion that REITs suddenly become less attractive because no one wants to buy treasuries anymore is crazy. And it ignores the fact that the Fed is likely to keep the federal funds target rate near zero. Translation: REITs are due for a bounce.With so many names sporting impressive yields after getting sold off this summer, investors who take the plunge into real estate investment trusts could be sitting on very favorable dividend payouts for as long as they hold. That's why we're taking a closer look at five REITs worth owning to call the Fed's taper bluff this fall.
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