The aging U.S. population is one of the most powerful social trends
in the country. Retirees searching for income are one of the most
powerful financial forces in the
market. When you add the two together, you have the perfect cocktail of growth and income.
With the U.S. Federal Reserve punishing retirees by smashing interest
rates into the ground, yield-hungry investors continue to turn away
from traditional income safe havens like Treasury and investment-grade
corporate bonds. One of the places they are turning to is
real estate investment trusts (REITs). The key feature of a REIT is that its corporate structure requires it to pay 90% of its income to its
limited partners, or unit holders.
This corporate structure has produced some very high yields during this time of record-low interest rates.
At the end of 2012, the average
dividend yield on a REIT was about 3.6%, almost twice the
yield of the
benchmark 10-Year
Treasury note,
which yields a mere 2%. And after years of falling yields on REITs, the
trend has begun reversing, with the groups average dividend yield up
almost 12% in 2012. Looking forward, dividend yields on REITs are
projected to grow about 6.5% annually through 2016, according to
investment research company Cohen and Steers.
(more)
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