If you’re looking for solid stocks with dividend yields over 3 percent, real estate investment trusts, or REITs, are an excellent option. They’re required to pay out 90 percent of their taxable income to shareholders, and many pay 100 percent. One REIT for investors to consider is Public Storage (NYSE: PSA), which has a dividend yield recently over 4 percent.
Public Storage primarily acquires, develops and operates self-storage facilities, and it boasts more than 2,400 facilities in 38 states and 228 facilities in Western Europe. It generates revenue through rental income from tenants, and it can boost that by raising prices in supply-constrained markets or via higher occupancy rates. On the downside, tenant leases tend to be short-term in nature, which can lead to a more cyclical business.
Public Storage offers a lot of stability. Over the past few quarters, its occupancy rate has easily topped 90 percent – and it’s even stronger in the supply-constrained West Coast regions. It also has more market share than the next three largest publicly traded self-storage companies combined. Investors can enjoy its dominant market-share position, thanks to its early acquisition strategy that gobbled up facilities in a highly fragmented industry.
People will always need a place to store extra stuff; that demand isn’t going away anytime soon. That makes Public Storage well worth considering for long-term investors seeking income.
Ask the Fool
Q: I heard the S&P 500 recently reorganized itself. What does that mean? – A.B., Winona, Minnesota
A: The Standard & Poor’s 500 index of 500 big companies is adjusted regularly, with some companies being removed from the index while others are added to replace them. For example, Twitter was added to the index in June to replace Monsanto, as Monsanto was being acquired by the German company Bayer and would no longer be a stand-alone company or stock.
The index recently underwent a bigger transformation than usual, though, as it changed how it classifies and groups certain companies. Gone is the Telecoms sector, replaced by a new Communications Services sector. The new sector will contain not only companies that provide various communication platforms but also companies offering media content. Some of its components will be Comcast, AT&T, Verizon Communications, Walt Disney, Facebook, Twitter, Netflix and Google’s parent, Alphabet. The change was made to better classify companies with operations that span communication channels and content.
The reorganization won’t really affect those invested in the overall S&P 500 index, but if you’ve invested in any funds specializing in various sectors, the holdings in them may well have changed.
Q: What do you think about investing in companies that have filed for bankruptcy protection? Their stocks look cheap – might they not recover and be good investments? – R.Y., Strasburg, Virginia
A: It’s best to steer clear of bankruptcies.
Holders of common stock tend to get little or nothing when companies emerge from bankruptcy, while creditors and others might get some pennies on the dollar. These companies also often emerge with new stock, their old stock rendered worthless. Give them some time to perform post-bankruptcy before considering investing.
My dumbest investment
As a man, I should have known better when my loving spouse said she did not understand why a real estate limited partnership was a good investment for our (very modest) college savings for our daughters and/or future house purchase. But I, of course, in my male wisdom, not only listened to the brokerage salesperson but also elected to invest in it in my IRA.
Well, it was later revealed my brokerage was misbehaving, and it wiped out many thousands of investors, pushing limited partnerships and suggesting they were as safe as CDs.
I lost the entire $2,000 investment in my IRA. And by the way, I shouldn’t have had a tax-advantaged investment in my IRA anyway, as the IRA is already tax-advantaged. You pay your money for some education. I also try to listen to my spouse more. – B.H., online
The Fool responds: You learned some great lessons. For starters, some investments are better suited for IRAs than others. Stocks you expect to grow the fastest and securities paying hefty interest or dividends might be good for your Roth IRA, as you can expect not to be taxed on withdrawals. Tax-free bonds, on the other hand, needn’t be in a tax-advantaged account. Meanwhile, know that many limited partnerships are fine investments, but they do work a little differently than common stocks, and you should read up before investing.
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