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Should I Dump My REITs?
Published about 5 hours ago • 4 min read
I own Agree Realty (ADC) and VICI Properties (VICI). And as interest rates keep climbing, they keep sinking.
I bought my first ADC shares on 2/21/2024 at $56.85. My first VICI shares were on 9/22/2023 at $29.95 and I have kept adding to both in my self-directed IRA at Schwab. REIT dividends get taxed like regular income, so the IRA pushes that tax bill down the road.
So why do I own them? ADC is the easy way to own quality commercial real estate. VICI owns some of the most famous casinos on the Las Vegas Strip. Diversification, plus a paycheck.
But as the prices drop, they shrink in my portfolio. ADC is now about 2.6%. VICI is about 1.5%.
Here's what got me thinking. In this month's Intelligent Income newsletter, Brian Bollinger at Simply Safe Dividends pitched Realty Income (O) as an investment idea. Because the 10-year Treasury is above 5%, you can earn solid income with zero stock risk. So investors want a bigger yield from REITs and the only way to get it is lower share prices. Brian still likes the business because it's about 99% leased, has an A- credit rating, and has raised its dividend every year since 1994.
Then he closed by saying Realty Income is for "investors who value dependable monthly income."
That line created quite a bit of mental tension, because I'm 48 and years away from depending on my portfolio for income.
Some people hate this comparison, but I did it anyway. I stacked my REITs up against the S&P 500 (VOO), with dividends reinvested.
ADC vs VOO
$10,000 in ADC is now about $12,950. That's up 29.50%. The same $10,000 in VOO is now about $16,020. That's up 60.18%. ADC was ahead for a while, but not anymore.
VICI vs VOO
$10,000 in VICI is now about $9,100. That's down 9.00%. The same $10,000 in VOO is now about $18,590. That's up 85.87%. VICI has never been ahead. Not once.
I can already hear the pushback: "It's not fair to compare a REIT to a tech-heavy index." I don't care. VOO is the ultimate "know nothing" easy button, and if I can't beat it, I need a good reason to own something else.
Steven Bavaria gives one in his book The Income Factory. He says to think of your portfolio like a factory and what matters is the cash it pumps out. You reinvest that cash, and the income keeps growing. The share price going up isn't the point.
And I get it. A REIT is about income first with share price a distant second.
But it all comes down to one question: Do you want more diversification and more income now? Or more of 500 of America's biggest companies, and probably more money later?
If rates fall, REITs should bounce back as yield hunters return. But nobody knows when, or if.
If I sell all my REITs and put that money in the S&P 500, I'd likely end up with a bigger pile. And when I need income, I can swap part of that pile into REITs, MLPs, or BDCs.
But I already have about 60% in S&P 500 funds (65% if you count VTI). Piling into what's working works... until it doesn't.
Right now I'm leaning toward keeping my REITs as a portfolio diversifier and focusing on the quality of the companies and the income they make. But I'd be lying if I said I wasn't tempted to move my REIT and BDC money, about 7% of my portfolio, into more S&P 500.
What would you do? Hit reply and tell me. I'd love to hear it.
Toby and Jake chatted with Jonathan Boyar about beaten down compounders, and even touched on several dividend paying companies like Restaurant Brands International (QSR) and Pool Corp (POOL).
Very cool episode from Tracey Ryniec about how a few non-professional investors created multi-million dollar portfolios, and what lessons we can take away from them to do the same.
Disclaimer: This is not investment advice. Do your own research before making any investment decisions.
😁THANK YOU to all who responded to the last newsletter!!
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