Look to REITs for Retirement Income as Inflation Heats Up
August 27, 2018 | Eleanor Laise | Kiplinger
Bond yields remain low, inflation is ticking up, and stock valuations look lofty. That all sounds like bad news for investors—but those holding real estate investment trusts may stand to benefit.
REITs are companies that own, operate or finance property such as offices, shopping centers and apartment buildings. They’re required to distribute at least 90% of their taxable income to shareholders, so they tend to offer generous dividends. That income, combined with potential stock-price appreciation, can help investors outpace inflation. And a dose of real estate can be a diversifier: REITs tend to have low correlations with the broader stock market and with bonds.
There are currently some bargains to be found among REITs focused on shopping centers, senior housing, data centers and other property types, analysts and money managers say. But income-focused retirees need to pick their REITs carefully and resist the temptation to pounce on the juiciest yields. While there are REITs yielding 10% to 12%, these often use leverage, or borrowed money, to boost their income, and they may be hit hard as interest rates rise, says John Buckingham, chief investment officer at AFAM Capital, in Aliso Viejo, Calif. Older investors should set realistic return expectations and expect some volatility, he says.
