Why One of My Favorite Investments Is STILL REITs

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Wednesday, August 15th, 2012

One of my favorite investments has been REITs.

What this means is that the IRS has given the corporation a special designation because its investing in real estate.

The incentive is this: By investing in real estate as an REIT, the trust doesnt have to pay corporate taxes but in return, the REIT must distribute 90% of its income to its investors.

The type of real estate an REIT can invest in is varied. They can invest in office buildings, strip malls, big box retail buildings, amusement parks, theaters, sports stadiums, hotels, nursing homes, hospitals, even farmland and world-class vineyards.

So an REITs investment portfolio can be quite diverse eliminating risk if one particular real estate market (like commercial real estate, for example) goes into the tank.

But its the 90% income distribution thats so attractive to investors.

And in a yield-starved world, REITs have been the investment of choice for investors looking for steady income.

Thats why REITs have been some of the best-performing investments over the last five years.

The Vanguard REIT Index ETF (VNQ) is one of the most widely followed and widely held REIT ETFs in the United States. It holds 99 REITs with names like Simon Property Group and Realty Income as its backbone.

Heres a chart of the Vanguard REIT Index ETF since the market crisis bottom in March 2009:

As impressive as those gains are, look how well its done against the Dow during this period:

And remember, this is just capital appreciation. These returns dont factor in the quarterly and monthly income distributions these REITs are paying, so the total return is even higher.

According to the website ETFchannel.com, which tracks the investment inflows and outflows of ETFs, VNQ has seen some of the biggest inflows for the past three months.

Without a doubt, REITs are one of the best ways to collect extra income consistently and safely.

My favorite REIT for income is a Canadian outfit that collects rent from some of the biggest retailers in the world.

And they just announced a monster second quarter.

You see, this particular REIT is the largest owner of big box real estate space in Canada. They have nearly 26 million square feet of retail space 99% of which is currently rented out. So basically, theyre at full capacity.

To give you an idea of just how much retail space this REIT controls, their total square footage would fill 450 NFL-sized football fields. You could fit four Pentagons, the worlds largest building by floor space, in this REITs stores!

Q2 was so strong for this company that it pushed units of the REIT to all-time record highs. Take a look:

Most of their space is rented to retail giant Wal-Mart.

In fact, of the 118 retail properties this REIT owns, 76 are rented out by Wal-Mart. In other words, a full 64% of this REIT’s square footage is rented out by the largest retailer in the world.

It collects rent from a company so big that if it were its own nation, it would rank as the 26th largest economy in the entire world bigger than Sweden, Switzerland, Greece, Norway, and Chile, to name just a few.

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Ive explained in these very pages how Wal-Mart is on cruise control to take its annual revenue to $1 trillion.

Currently, theyre doing $455 billion.

Wal-Mart will achieve this milestone by expanding in foreign markets. One of the nations Wal-Mart is expanding rapidly into is Canada.

And this REIT will provide Wal-Mart will the retail space it needs to expand even further.

Furthermore, this REIT will collect rent from Wal-Mart every single month and every single month, this REIT must by law send its investors the payments it collects from Wal-Mart as well as a dozen other retailers it leases property to.

(I should also mention this REIT has never missed a distribution payment.)

Now, I want you to listen to this: I alerted my readers to this special situation back in March of this year.

Since that recommendation, this REIT has returned my readers 20% so far. Compare that with the near 7% the Dow has returned this year.

Right now, the yield on this REIT is 5.7%. Its as if Wal-Mart is giving you a savings account that pays you 5.7% and again, thats not including the capital appreciation.

This is a no-brainer.

Ive put together a free report on how to collect monthly rental checks from Wal-Mart here.

I urge you to take a look because as you read this, Wal-Mart is opening supercenter after supercenter in Canada.

Profitably yours,

Brian Hicks

Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the original bull on America, Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor’s page .

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