We started this out this week by adding 2 new holdings to our highly popular Bond ladder which we shared with members of our private community. Yesterday, we expanded our activity by adding a new short term opportunity!
We also enjoyed news of a dividend hike within our Core portfolio:
Enterprise Product Partners (EPD) hiked their quarterly payout by 1.9%:
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Successful investing involves a delicate balance between patience and strategy. When markets become volatile, and stock prices drop, many investors panic and sell to protect their financial future. However, most of the time, decisions made in a knee-jerk reaction to market movements are detrimental to your financial future. Moments of turbulence can present incredible opportunities, and as income investors, time in the market is money in our pockets. Declining stock prices in solid, dividend-paying companies don’t just mean lower valuations; they often mean higher yields and a chance to reinvest at a discount.
The philosophy behind "The More It Drops, The More I Buy" isn't reckless speculation—it's a calculated approach to building long-term wealth. By focusing on reliable, income-generating stocks with a proven track record of dividends, investors can capitalize on short-term volatility while staying committed to their broader financial goals.
In this article, we’ll explore two REIT picks that are facing price headwinds due to uncertainty over interest rates. Rates continue to drop, and both discussed picks are well-positioned to enrich my income through the noise and beyond.
Pick 1: NNN – Yield 6%
NNN REIT Inc. (NNN) was initially created by Golden Corral in 1984 as a way for employees to invest in the company without the owners having to give up interest in the operating company. It was spun off in 1993, and management was internalized in 1998.
Today, the company owns and operates 3,549 properties over 49 states, covering 37 lines of trade, making it a highly diversified portfolio. NNN ended Q3 with a 99.3% occupancy and 380 tenants, with only 3.9% of the leases expiring in FY 2025. 7-Eleven is the REIT’s largest tenant, representing 4.6% of the base rent.
Q3 Investor Presentation
NNN faces challenges with two of its tenants, representing 2.1% of the Annual Base Rent. The first is Badcock Furniture (constituting 0.6% of NNN’s Annual Base Rent of $5.2 million from 32 stores), and the second is Frisch, a hamburger quick service restaurant, which only paid half the rent owed during the third quarter (64 properties, representing 1.5% of the ABR, or $12.6 million).
Tenant issues, such as bankruptcies or payment delinquencies, are a routine part of managing a diversified REIT portfolio. While these challenges create short-term headwinds, NNN’s strong overall occupancy levels reflect ongoing demand for its properties, underscoring its long-term stability. The REIT is 100% invested in the U.S., insulating its operations from currency fluctuations and geopolitics. The REIT maintains a BBB+ credit rating and 35 years of annual dividend growth, and its current payout stands at a modest 67% of its AFFO.
Pick 2: RLTY – Yield 9%
Real Estate Opportunities and Income Fund (RLTY) is the newest REIT Closed-End Fund from Cohen & Steers. RLTY maintains a diversified portfolio of 207 holdings, with its top ten being the best-in-class REITs within their respective domains. Source
RLTY Fact Card
RLTY maintains a 70% allocation to common equity and 30% strategic allocation to fixed income. The CEF’s top focus areas are Telecom (13%), Healthcare (11%), Corporate Bonds (11%), and Data Centers (9.5%), with a notable allocation to preferred securities (7%)/
~90% of RLTY’s assets are invested in North American REITs, overwhelmingly U.S.-based. The CEF operates with an 89% fixed-rate leverage at 2.8% with a weighted average term of 1.5 years. This positions the CEF for limited benefits from interest rate cuts in the near term. The CEF’s blended borrowing costs are 3.2%, and its larger fixed-rate exposure limits the upside from rate cuts.
RLTY pays monthly distributions of $0.11/share, reflecting an 8.8% yield. The CEF estimates 64.5% of its 2024 distributions to be Return of Capital, while 35.5% from NII, making it an advantage from a taxation standpoint.
RLTY trades at a 6.2% discount to NAV, presenting an additional opportunity to capture a high yield from the undervalued REIT sector.
Conclusion
It is easy to get caught up in the emotional rollercoaster of market fluctuations. Watching a stock's price decline can stir feelings of fear and uncertainty. However, disciplined dividend investors see these moments as opportunities rather than setbacks. As a dividend investor, you always have cash flow to remain a buyer in the market. Each reinvested dividend and every dollar invested during a market downturn brings you one step closer to financial independence, since it amplifies the subsequent payouts.
At High Dividend Opportunities, we focus on income-oriented securities with strong fundamentals, where current income constitutes the bulk of shareholder returns. The two picks highlighted in this article embody this principle. We believe that wealth isn’t built overnight—it’s built brick by brick, stock by stock, and dividend by dividend.
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