REITs Offer a Compelling Anchor and Booyah!

NEW YORK (TheStreet) -- It's clear that market volatility will be a way of life in 2013: Europe with its debt problems; China's growth constantly scrutinized; as the U.S. nudges forward.

That translates into one thing: FEAR. That makes it most difficult for investors to predict where to zig or to zag, making stock selection increasingly difficult. So where do intelligent investors find the next pockets of opportunity, especially the companies that earn excess of returns over long periods of time?

REITs: The Anchor and the Buoy

Oh yes. Don't you remember? REITs payout more than at least 90% of their income to their shareholders in the form of dividends, and you pay taxes only when you decide to sell. Another key differentiator for REITs, compared with non-REITs, is total return ingredients. Remember that a non-REIT stock is anchored by capital appreciation and dividends are simply the "icing on the cake." However, REITs are just the opposite. In fact, REITs, on average, return 60% of total return in dividends -- making dividends the anchor and growth the buoy.

Speaking of Buoy. What about Mr. Booyah?

Oh yes. Jim Cramer loves REITs. I have watched many of his guests this year on CNBC's "Mad Money" and I can tell you that Mr. Booyah knows how to pick 'em. For example, Cramer interviewed Edward Aldag, CEO of Medical Properties Trust ( MPW) on Oct. 8. The Birmingham, Ala.-based health care REIT is paying a splendid 6.69% dividend yield with a year-over-year total return of a whopping 31.17%. MPW is the only pure hospital focused REIT with the $1.621 billion (market cap) REIT's shares are trading at $11.96. A solid buy!

Another strong anchor and booyah play is Healthcare Trust of America ( HTA). Again, another Cramer pick as he interviewed HTA's CEO, Scott Peters, on Nov. 29. I like Cramer because he knows how to pick the new kids on the block and the stalwart brands.

Scottsdale, Ariz.-based HTA, considered a new kid, listed as a public REIT last year, has begun to carve out a niche in medical office buildings. Just a few days ago Wells Fargo issued an outperform rating on the $2.122 billion (market cap) company with shares trading at $9.90. Wells believes the shares could reach $11.50 (I do too) with a steady and reliable dividend yield of 5.81%.

Booyah loves steady dividends and he certainly picked a great guest when he interviewed Steve Tanger, CEO of Tanger Factory Outlet Centers ( SKT). Forget the fact that Tanger and I are both Carolina boys. The Greensboro, N.C. company has built an impressive track record of paying dividends. So impressive that Tanger will soon be inducted into S&P's, dividend aristocrat club -- meaning Tanger will have paid consecutive and increased dividends for more than 20 years in a row.

There are just a handful of other REITs that enjoy the same record as Tanger and what is most impressive is the fact that the stalwart performer kept paying (and increasing) during one of the worst economic markets of all time. Tanger, rated BBB by S&P, has a current market cap of $3.212 billion with shares currently trading at $34.20. The dividend yield is a modest 2.46%; however, the company easily beat the S&P 500 performance with a year-over-year total return of 19.8%.

Last but not least, was Weingarten Realty Investors ( WRI). Cramer had Drew Alexander, CEO of Weingarten, on MadMoney during the Dec. 5 show. As Cramer pointed out, Weingarten has a necessity-based platform that provides for a durable dividend record. Weingarten has a market cap of around $3.25 billion with shares trading at $26.77. The company's dividend yield is 4.33% and the year-over-year total return is 28.22%.

Forced Dividends Are the Best Dividends

The attraction to the safe havens of REIT dividends is the fact that there are no options for these companies to pay or not to pay a dividend. By law, they are forced to do so to retain their REIT status. Alternatively, non-REITs have a choice in how much to pay out in dividends. With the threat of the uncertainties in the year ahead, the non-REIT payers may likely choose to conserve cash and very possibly cut dividends in 2013 or at least not increase them.

Real estate held through a REIT offers tax efficiency and it is an investment in an income producing, hard asset. By comparison, most investors in paper based, fixed income instruments like bonds fear inflation and rising interest rates. But, for REIT investors, those factors often are not sources of fear but rather can bring rewards. Real estate actually tends to be a good inflation hedge via rising rents and asset values.

More importantly, intelligent investors should consider the anchor (the dividend) and the buoy (capital appreciation) as the fundamental ingredient for a "sleep well at night" stock. Booyah and Happy New Year!

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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