Need Money For A College Fund? Try This Basket of High-Yield REIT Dividend Growers
Parents or grandparents often desire to invest some money in the future costs of college or postgraduate education for their children. However, it's not always known how to invest the funds safely and wisely. The simplest way may be to choose an index fund, such as the SPDR S&P 500 ETF Trust (NYSE:SPY), but fast-growing dividend stocks with moderate to high yields may perform just as well or better over time.
Real estate investment trusts (REITs) are required to pay shareholders 90% or more of the company's taxable profits received. At times, in addition to the regularly scheduled dividend, REITs may even pay out special annual dividends on assets sold for a profit. Recent examples of this include Host Hotels & Resorts Inc. (NASDAQ:HST), which paid a $0.25 per share special dividend in December, and Farmland Partners Inc. (NYSE:FPI) which paid a $0.21 per share special dividend in January.
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Passive income investments are one of the most trusted methods for riding out a recession, so it's no surprise that people are turning to these high-yield commercial real estate notes that pay a fixed 10% – 12%.
Investors cannot predict in advance which REITs are likely to pay special dividends, but by looking at present and historical information, one can see which REITs are likely to continue paying high yields in future years.
The following chart details 10 REITs that could make an excellent basket of stocks for a future goal, such as a college education or even a down payment on a home. The criteria employed are REITs that have a present yield of 5% or greater, a five-year average dividend growth rate of 3% or more and a five-year annual average beta (volatility risk compared with the S&P 500) of less than 1.1. The S&P 500 has a beta of 1, so it's best to stay close to or below that number.
To further reduce risk, the 10 REITs selected have a wide range of diversity among REIT subsectors. These include three retail, one healthcare, one office, one diversified and four specialized REITs. The specialized REITs are further divided into a telecom tower, self-storage, casino/gaming and restaurant REITs.
An initial investment of $10,000 in this basket, with $2,000 annual contributions coupled with an initial annual dividend yield of 5%, expected dividend increases of 3% a year, 3% annual share price appreciation and a 15% long-term dividend tax rate, will become $48,097 over 10 years. The results assume the investor uses a dividend reinvestment plan.
These numbers are purposely calculated on the conservative side. Most of the yields are far above 5% and the dividend growth rates in most cases are well above 3%. The 10-year annualized total return average for six of the REITs was 8.53%. The four REITs that did not have 10 years of returns had a 5-year average annualized total return of 8.18%. So those total returns are slightly higher than the 8% estimate of dividend yield plus appreciation used in the calculation model.
Take a look at the chart below to see the 10 REITs selected for this basket:
Name | Symbol | Dividend Yield | Dividend Growth Rate | Beta |
Crown Castle Inc. | CCI | 5.65% | 6.82% | 0.74 |
Agree Realty Corp. | ADC | 4.97% | 5.95% | 0.54 |
Realty Income Corp. | O | 5.55% | 3.02% | 0.9 |
Kilroy Realty Corp. | KRC | 5.55% | 3.48% | 1.04 |
National Storage Affiliates Trust | NSA | 5.78% | 13.3% | 0.85 |
VICI Properties Inc. | VICI | 5.44% | 7.62% | 0.87 |
Getty Realty Corp. | GTY | 6.48% | 5.15% | 0.88 |
Four Corners Property Trust Inc. | FCPT | 5.81% | 3.71% | 0.98 |
Caretrust REIT Inc. | CTRE | 5.29% | 6.43% | 1.06 |
CTO Realty Growth Inc. | CTO | 9.04% | 77.26% | 0.95 |
The earlier in the child's life that you start contributing to a college fund, the better. The portfolio value after 15 years increases to $79,809, and if you initiate the portfolio at the time of birth, in 18 years the value increases to $104,902.
College and postgraduate tuition has risen sharply over the past 20 years. In 2004, the average annual tuition among national universities was $4,633 for in-state students. This year, it's $11,970. That's a 158% increase, so imagine what tuition could cost 15 or 20 years down the road.
Keep in mind that the basket presented here could perform better or worse than the numbers achieved over the past 10 years. But if an investor is looking for a way to fund college tuition for their children or grandchildren, well-performing REITs with solid dividend growth and yields could be a great place to start.
Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it's too late. Benzinga's in-house real estate research team has been working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for the Weekly REIT Report.
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