By Gary Christie
August 19, 2019
In The Globe And Mail, Gary Christie uses Strategy Builder to search for defensive U.S. Real Estate stocks with high distribution yields, attractive valuation levels and a track record of recent unit price performance.
What are we looking for?
Defensive U.S. Real Estate stocks with high distribution yields, attractive valuation levels and a track record of recent unit price performance.
Markets are feeling pressure around the globe. Looking at the S&P 500 (SPX) there doesn't appear to be a major intermediate-term bottom in place just yet. Prices remain bearish below key resistance at 2950. The uptrend from the start of 2019 has been broken and the index remain below its 50-day moving average, a bearish signal. An ABC corrective wave pattern may be taking place as it did back in May, potentially sending prices lower to test March and June lows at the 2720 level.
The ten-year Treasury yield dropped below the 2-year yield for the first time since 2007. This has created a second inversion of the yield curve as the 10-year yield already fell below the three-month yield this year. Historically, inversions of the yield curve have been signals of a pending recession. The warning signal comes amid rising tensions due to the U.S. trade war with China. It is no surprise investors are seeking a safe haven against plunging global interest rates and fears of a slowing global economy.
The Real Estate sector fund ETF (XLRE) has been the only sector with positive performance over the last month. The sector is benefiting on the prospect of lower interest rates in the future as investors look to invest in higher yielding defensive assets.
The screen
We will be using Trading Central Strategy Builder to search for defensive US Real Estate stocks with high distribution yields, attractive valuation levels and a track record of recent unit price performance.
We will start by screening for U.S. real Estate stocks with a market capitalization of $1B or more. To find REITs with attractive income properties, we will screen for distribution yields of 4% or more. To ensure we focus on REITs with reasonable valuations, we will filter based on price-to-book ratios of 1.5 or less.
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What did we find?
Topping our list is Sabra Health Care REIT (SBRA-Q) with a market cap of 3.9B and an impressive dividend yield of 8.6 per cent. Sabra Health Care REIT is a healthcare facility real estate investment trust. The company owns and invests in healthcare real estate. Sabra's operations consist of nursing facilities, assisted living centers, and mental health facilities. REIT’s have been the best performing stocks inside the real estate sector. The REIT units are still trading modestly below their book value.
The highest distribution yield on our list belongs to Global Net Lease Inc. (GNL-N), a real estate investment trust that manages a globally diversified portfolio of commercial real estate properties. Its real estate assets span the United States, the United Kingdom, Germany, the Netherlands, Belgium, Luxembourg, France, and Finland. The portfolio assets include office, industrial and distribution and retail, with office buildings representing more than half of the properties. The company’s current dividend yield is at 11 per cent with a low price-to-book ratio of 1.06 making the units quite attractive in terms of value.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing. Gary Christie is head of North American research at Trading Central.
