Forecasts for global economic growth are dropping dramatically. The United States is now seen as a safe haven island unto itself.
Now, investors are buying dollars, which has pushed yields on debt securities even lower.
These machinations have led investors to move to riskier high-yield investments, which has in turn lifted stocks significantly in the first two months of 2019.
Wall Street often has a crude sense of humor knowing that such “risk-on” trades may be coming at exactly the wrong time.
First, analysts are unclear about corporate earnings in 2019. They have no clue if there will be any meaningful growth in earnings.
We already know GDP will come in lower than a year prior.
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So how can it be that stock prices are going higher?
In some ways, it makes sense. There is no other place for capital to flow.
Investors interested in safer alternatives to buying stocks just as the economy is teetering should be looking at real estate investment trusts, or REITs.
REITs are even more attractive for investors looking for income.
Retail sales in December collapsed, pushing bond yields even lower.
The stars are aligning perfectly for investing in REITs, and the Money Morning Stock VQScore™ system just identified two that rank highly. Best of all, one pays a dividend yield of over 12%.
These are the two best REITs to buy today…
Best REITs to Buy Now, No. 2:
All the gyrations in the economy may be interpreted negatively in the near term, but REIT investors are more focused on the long term.
What matters most to the REIT investor is reliability of cash flow.
A stable cash flow is required to pay the dividends that make REITs so attractive today.
Sunstone Hotel Investors Inc. (NYSE: SHO) has investments in 22 hotels that operate under recognizable brands like Marriott, Hilton, and Hyatt.
Those recognizable names provide stability to Sunstone in regards to cash flow.
Analysts expect Sunstone to generate $1.5 billion in revenue in 2018 and $1.3 billion in revenue in 2019.
That incremental decline in sales is one reason shares of Sunstone have declined 5% since November of 2018.
But with a 5% dividend yield, investors in Sunstone are nearly doubling the current yield on the 10-year Treasury.
That’s huge outperformance that should be exploited in the current environment.
Now, here’s the top REIT to buy today…
Best REITs to Buy Now, No. 1:
The top pick today is New Residential Investment Corp. (NYSE: NRZ).
There is a perception in the bond market that interest rates will rise in light of the U.S. Federal Reserve reducing its balance sheet.
The idea is that the absence of buyers requires borrowers to offer a higher rate.
That’s basic supply and demand economics, but the reality of the market is much more complex.
Since the end of quantitative easing, the central bank has been largely absent from credit markets.
At the same time, interest rates have plunged.
In other words, the lack of buying has been replaced by others in the market seeking the safety of the U.S. debt market.
New Residential Investment is in the middle of all the action as an investor and manager of mortgage-related assets.
Those assets became much more valuable in 2018 as yields plunged and prices rose.
Still, the market values New Residential on the assumption that rates will be going higher or the market will plunge overall.
Too much fear if you ask me, but that fear creates opportunity.
In the case of New Residential, a buyer of the stock will receive nearly 12% on their money today.
That’s a massive rate of return compared to other debt instruments.
Some may rightly ask if that yield is sustainable.
The answer is probably not, but fear not.
Any reduction in yield here would be offset by a corresponding rise in share value or even more.
It’s almost as if investors can’t lose buying New Residential today.
In fact, they haven’t.
The stock has barely moved during the sell-off of the last quarter of 2018.
While the market may be swirling around New Residential, investors can safely look at the stock as a harbor in the tempest.
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Source: Money Morning