REIT Investing: Necessity is the Mother of Invention
But what does innovation have to do with consistent income? After all, we have all seen (AAPL) Apple's (AAPL) highly innovative platform bounce around and drop by 36% wiping out around $225 billion in market. Ahh, but wait. Apple's volatility doesn't make up for the meager 2.4% dividend yield -- hardly a dividend champion.
And of course Facebook (FB) with its highly innovative platform pays no dividend at all. Ouch! So how does a fixed-income investor find an alternative that provides durable dividends that are driven by innovatively crafted products?
REITs Provide a True Measure of Dividend Repeatability
There are plenty of alternative income options today and the real estate investment trusts provide a uniquely sustainable platform where consistency is measured by extraordinary risk control. Accordingly, the success or failure of a REIT is directly correlated to providing strong sources of differentiation yielding greater strategic advantage. Chris Zook, co-author of "Repeatability: Building Enduring Businesses for a World of Constant Change," explains:
Differentiation is the essence of strategy, the prime source of competitive advantage. You earn money not just by performing a valuable task but by being different from your competitors in a manner that lets you serve your core customers better and more profitably.
We all know REITs are a unique asset class. The primary attraction being the fact that there are no options for companies to pay, or not to pay, a dividend, since by law, REITs are forced to pay out at least 90% of their otherwise taxable income. The dividends that REIT investors receive out of earnings haven't been reduced by taxes at the corporate level, making REITs tax-efficient conduits for real estate income. Simply said, REITs are forced to do so to retain their REIT status.
Find a REIT that has a Highly Innovative Operating Platform
Today we are seeing an evolution in REITs in which companies that were once just landlords are now becoming more than that. We have found that to remain truly competitive REITs must be strategically-aligned risk-managers where the companies demonstrate both sound shareholder value and tenant value. In other words, REITs today must make innovation a core attribute.
I just returned from a data center conference in New York City. While there, I learned a lot about the demand for "cloud" space and the durability of the highly innovative data sector industry. It was there that I discovered the extraordinary demand for cloud storage and the fundamentals that make the asset sector so desirable.