As I’ve discussed in our recent articles, some of the equity REITs have seen values diverging. The disparity in valuations is large enough that it was time to reallocate. When we evaluate the shares using our “price to buy” column, the gap is 1460 basis points (14.6%). Given such a large spread for REITs in the same sector, it makes sense to reallocate.
We allowed our reading of relative values to drive our initial allocation as well. That worked out quite well.
We closed out the entire position in the first REIT and reallocated a very similar dollar amount to the second REIT. Despite many REITs being pretty close to their 52-week lows, we’re actually pocketing gains on every batch of shares we closed. That’s pretty good, given the current environment.
To be clear, this sector has been suffering from significant weakness. We’re not trying to predict an immediate turnaround. However, the valuation looks solid. We’re tossing this position in the taxable account and collecting a solid dividend yield of around 4 and a half percent with a very reasonable payout ratio.