Motley Fool: Investors could trust real estate
A real estate investment trust (REIT) is usually a company that owns many properties, generating income by leasing them out.
Realty Income is a diversified REIT that has delivered a 13.9% compound annual total return from its public market listing in 1994 to the end of 2023.
The stock’s dividend recently yielded 5.9%, and Realty Income has raised its monthly dividend 124 times since 1994 – with an average annual increase of 4.3%.
Realty Income is a low-volatility stock, partly because of the overall stability of its cash flow.
It owns commercial properties secured by long-term net leases with high-quality tenants, in industries relatively immune to economic downturns and the disruption of e-commerce – such as grocery stores, home improvement centers and warehouses.
The net lease structure requires each tenant to cover maintenance, building insurance and real estate taxes, enabling Realty Income to generate stable cash flow, most of which it pays out to investors via its monthly dividend.
Acquisitions are Realty Income’s other growth driver. Its strong balance sheet enables it to invest billions of dollars each year into new income-producing real estate.
The company also has one of the highest credit ratings in the REIT sector. It steadily grows its cash flow and dividend, driving reliable returns for its investors. (The Motley Fool owns shares of and has recommended Realty Income.)
Ask the Fool
Q. What’s a “SPAC”? And what does it have to do with Truth Social? – R.C., Las Vegas
A. A special purpose acquisition company (SPAC) undergoes an initial public offering (IPO) as a shell company – one with no particular operations; it exists only to eventually acquire or merge with one or more other companies. (It’s also referred to as a “blank check company.”)
The company behind Truth Social, Trump Media & Technology Group (TMTG), used a SPAC to go public instead of holding an IPO of its own.
TMTG merged with the SPAC Digital World Acquisition Corp. in late March, then started trading under the ticker symbol DJT.
The stock is – and is likely to remain – volatile, as are many post-merger SPACs.
Some such stocks keep falling, for good reason, while others recover and do well. That’s why, in general, investors need to do some research before buying – and then if they do buy, to keep up with the company afterward.
Q. When I graduate from college, should I pay off my student loans as soon as possible, or just make the regular payments on them while investing elsewhere? – D.H., online
A. Either option can make sense, depending on the interest rates on your loans and the investment growth rates you expect.
If your debt is costing you a lot, or at least more than you expect to earn by investing, paying it off as soon as you can makes good sense.
But if you’re paying, say, 6% on your loans while hoping to earn an average of 8% or more in stocks, you might choose to stick to the regular repayment schedule.
My Dumbest Investment
One of my worst financial decisions was selling my house too soon. – K.M., online
The Fool responds: We’ll assume you’re regretting this move because the value of the home rose a lot after you sold.
That can happen, but how could you have predicted it would? You couldn’t have known, so this was more just bad luck than bad thinking.
Most of us shouldn’t expect large gains from real estate, anyway.
According to the Case-Shiller U.S. National Home Price index, home prices averaged annual appreciation of about 4.8% between 1987 and 2023, and gains have been much smaller or even negative over certain periods and in certain locations.
Anyone hoping to get rich via real estate should learn about and consider stocks instead, as the stock market has averaged annual gains of close to 10% over long periods.
If you sold before having lived in the home for two out of the previous five years, you may have missed out on the home sale exclusion offered by the Internal Revenue Service (IRS). It permits qualifying home sellers to exclude up to $250,000 of their gain from taxes – up to $500,000 for married couples.
Another home-sale regret can occur if you buy and sell homes frequently – because doing so isn’t free. There are always closing costs, which can cost you $10,000 to $20,000 or more each time you buy or sell.