I’d really like to know this as well. I just sold the 3 REIT’s that I held, and all of them have gone up in the last 3 months.

Josh

Just because a dividend increases, doesn’t mean your investment is any better. On the Prudent Investment thread, malfred wrote that he likes Southern Copper, bec. of its 9% dividend yield. History is full of companies which paid a high dividend despite their depreciating values; ponzi schemes also pay dividends; so a dividend doesn’t mean anything if my principal is eroding. Copper is in a huge bubble; I wouldn’t touch it with a 10foot pole.

Be careful of anything paying more than risk free (Treasury bills). The more it pays, the higher the risk.

Some investors are earning 10% on second deed trusts, not realizing that by next year, their principal will have evaporated. So just be careful out there with high paying dividend yields. They could very well be taking the dividend out of your principal.

PS –

Just because a dividend increases, doesn’t mean your investment is any better.

This is not what I wrote or intended.
I wrote, “when bond yields go down, the relative value of REIT dividends go up”

There are certainly some horrific cases where a dividend goes from 3-4% to 9-20% only because the associated stock tanks in value. This is not related in any way to the point I have made.

My point was that an investor is willing to pay more for an income stream that the REIT produces when bond rates have fallen.

Hopefully an example will solidify this …
Suppose you are out shopping for an investment and the 10-year bond pays 5.5% and a commercial REIT pays $6.50 in dividends and costs $100. Now, suppose that the 10-year bond yield goes to 4.5%. The $6.50 dividend in the REIT is now significantly more valuable. The investors that paid $100 for the REIT (1% spread over treasury) might be willing to pay $110 (1.5% spread over treasury) or even $118 (1% spread) .

I’ve written before about the economic cycle, led by wages, then consumer spending, capital spending, manufacturing, and finally unemployment.

Office buildings and commercial buildings, industrial parks, are in the capital spending and manufacturing parts of the cycle, and thus lag the consumer spending cycle by 3-9 months.

This is because current construction was entered into by late spring, when retail was still hot. I am sure, although I don’t have data on this yet, that anybody who had planned to expand their furniture factory, build a bigger mortgage office building, develop a new strip mall, or expand their car dealership, will not do so from this point on. By mid 2000, REITs will be down, as the vacancy rate will increase in the business sector.

Whenever a question arises about a sector, think about the economic cycle, and the lags between them.

Also remember that by the time a recession is identified, the worst damage is behind us. That’s how you become ahead of the curve (as Joseph Ellis’ book is titled).