Say what? Yup, shares of real estate investment trusts, or REITs, are on fire this year. The iShares Dow Jones Real Estate (IYR) exchange-traded fund, which owns about 75 real estate stocks, is up 9% so far in 2010.
There are various types of REITs focusing on different types of properties. And REITs across the board are having a good year.
Hotel owner Host Hotels & Resorts (HST, Fortune 500), which is in the S&P 500, has shot up 25% this year. So have shares of Kimco Realty (KIM), a REIT that primarily owns shopping centers. Office property owner Boston Properites (BXP) is up nearly 15%.
What's the attraction of REITs in what remains a stormy market for residential and commercial real estate? It's tempting to sum it up in one word. Yield.
Real estate investment trusts pay at least 90% of their taxable income to shareholders in the form of dividends. Doing so exempts REITS from having to pay federal income taxes.
For that reason, REITs tend to sport eye-popping dividend yields that make them more intriguing than bonds for fixed-income investors, especially in a low interest rate environment such as this.
The yield on the iShares REIT ETF is currently 4.5%. By way of comparison, the benchmark U.S. 10-year Treasury is yielding about 3.9%.
"REITS have been running up a bit as investors chase yield. Individuals that are largely in fixed income are starting to realize that there are better investments," said Jill Cuniff, president of Edge Asset Management, a Seattle-based investment firm that runs the Principal Equity Income fund
CNP Price at posting:
23.0¢ Sentiment: ST Buy Disclosure: Held
