Morningstar: REIT valuations are 'just nuts'

Morningstar: REIT valuations are 'just nuts'
In the search for income, investors are piling into dividend-paying REITs, driving up prices and poleaxing yields. How crowded is it in there? Said one Morningstar analyst: Property trust valuations are 'just nuts.'
MAY 21, 2012
By  JKEPHART
Dividend investing has been in vogue for some time now. One area of the dividend universe that investors may want to steer clear of, however, is real estate investment trusts. “Today we're seeing valuations that are just nuts,” said Josh Peters, editor of the Morningstar DividendInvestor newsletter. The increased valuations have driven down yields on REITs, which are primarily coveted for their income feature, to spreads above the 10-year Treasury that are overall “scary,” Mr. Peters said. “With Treasuries at 2%, you would expect REITs to be yielding 6, 7, or 8%," he said. "But no, you're getting 2 to 3%. The $2 billion SPDR Dow Jones REIT ETF Ticker:(RWR), which tracks an index of the largest U.S. REITs, has a yield of 2.8% today. Individually, there are a number of REITs trading in the 4% range, but the big names, such as Simon Property Group Inc. Ticker:(SPG) and Public Storage Ticker:(PSA), are yielding around 3%. The companies are being priced like growth vehicles, when, in reality, they're not great at growth, said Mr. Peters. “Investors need to think about REITs as income machines,” he said. “They can be great sources of total return too — if you can get them at the right price.” One sector Mr. Peters does like is health care, particularly pharmaceutical companies, which he said are currently undervalued and less sensitive to interest rate movements than REITs are.

Latest News

SEC Says Game Service Roblox Part of ‘Active Investigation’
SEC Says Game Service Roblox Part of ‘Active Investigation’

Short sellers previously said the company was under investigation, though Roblox denied allegations.

Musk’s DOGE descends on CFPB with intention to shut it down
Musk’s DOGE descends on CFPB with intention to shut it down

The Consumer Financial Protection Bureau is in the crosshairs of the Republican group that is widely attempting to dismantle government agencies.

Advisor fighting Finra banishment loses $17.7 million dispute with old firm
Advisor fighting Finra banishment loses $17.7 million dispute with old firm

National Securities Corp. sued the advisor in 2020, alleging breach of contract and unjust enrichment.

Job numbers, inflation leaving room for Fed to hold rates
Job numbers, inflation leaving room for Fed to hold rates

Recent data support a measured pace by the Federal Reserve for the year ahead.

Private assets remain hot despite surging stock market
Private assets remain hot despite surging stock market

Financial advisors are still adding alternatives despite the surge in publicly traded stock prices

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.

SPONSORED Why wealth advisors should care about the future of federal tax policy

Blue Vault features expert strategies to harness for maximum client advantage.