This High-Dividend REIT Is Undaunted By Janet Yellen

The Federal Reserve's imminent interest rate boost is supposedly bad news for REITs, but Alexandria Real Estate Equities is no ordinary REIT. Here's how it leverages Silicon Valley's growth.
By John Persinos ,

Real estate investment trusts (REITs) are high-yield assets popular with income investors because they're required to pay out at least 90% of their taxable profits as dividends to shareholders. But that's a double-edged sword, because as high-yield investments, REITs also are sensitive to interest rate changes.

The textbook rationale is this: higher interest rates compete against the yields on REITs, making them less attractive in terms of their risk-return profile.

To be sure, as it appears increasingly likely that the Federal Reserve will hike rates next month, REITs as a whole have been taking it on the chin. The iShares US Real Estate ETF (IYR) - Get Report is now down 5.73% year-to-date (YTD); it can be expected to fall farther as indications grow stronger that the Fed will tighten.

But that doesn't mean you need to give up on the income-generating power of REITs altogether. Here's a REIT with special qualities that will help it withstand the coming era of monetary tightening: Alexandria Real Estate Equities Inc. (ARE) - Get Report .

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With a market cap of $6.34 billion and a juicy dividend yield of 3.58%, Alexandria Real Estate Equities is a great way to play Silicon Valley's boom. The Technology Select Sector SPDR ETF (XLK) - Get Report is up 2.47% YTD, compared to a decline YTD of 1.46% for the S&P 500.

According to a MoneyTree report released this month, venture capitalists invested $7.9 billion in companies based in Silicon Valley firms in the third quarter of 2015, a year-over-year jump of 70.1%. MoneyTree is considered the definitive source of information on emerging entrepreneurial companies that receive venture capital financing.

You can tap into this mushrooming growth in the tech sector, as well as reap high income from a stable REIT, by investing in Alexandria Real Estate Equities. Based in Pasadena, Calif., this unique REIT focuses on emerging high-tech companies that need seed money or intermediate financing.

This REIT is in the vanguard of today's high-tech expansion, a trend that has been underscored in recent weeks by the robust earnings reports of big name tech companies such as Apple and Microsoft.

Alexandria Real Estate Equities is a life science real estate company specializing in offering not just physical real estate but also technical infrastructure and campus development services to pharmaceutical and biotech companies, academic centers, venture capital firms, and government agencies. This REIT has already developed campuses for Novartis, Eli Lilly, Pfizer, and Amgen, among others.

Sure, REITs are among a group of vulnerable stocks that tend to head south when rates go north, but this is not you're father's REIT.

Alexandria Real Estate Equities' growth has been fueled by the ever-increasing prosperity in Silicon Valley. The company also has reliably reported dividend increases every year since it was founded in 1994.

Alexandria Real Estate's "incubator" campuses are strategically situated in urban areas that boast highly educated talent, academic and medical institutions, and technical infrastructure. This makes the REIT a great play on promising high tech companies as well as Big Pharma.

The company now boasts a $2 billion pipeline of projects underway, which should translate into sufficient cash flow now and well into 2016 to sustain its high dividend. The stock is down 1.41% YTD due to fears that the Fed's tightening will hurt REITs, but that's shortsighted. This is no ordinary REIT and it's suitable for growth and income investors alike.

And did you also know you could be investing in a publicly traded, perfectly legal investment loaded with tax breaks and delivering safe, out-of-this-world yields? I'm talking about cash cows that yield 8%, 9% and 10%. And you don't have to be a zillionaire to pull this off. You don't even have to be in a high tax bracket. Find out how you could be getting high yields, explosive growth AND tax-free income today. Click here to learn more.

John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.

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