High Yield/Low Volatility

Higher Ground—How REITs Thrive in Inflationary Periods

Current macroeconomic factors make REITs especially suitable for risk-averse investors who still want solid returns.

Markets are causing motion sickness. Daily Dow fluctuations are driven by historically high inflation, the Fed response, skyrocketing gas prices, and an economy still reeling from the worst global pandemic in a century has everyone wondering when it will end.

Volatility means opportunity, but it’s currently too much, and intelligent investors worry about protecting and growing their carefully-constructed portfolios with all that’s happening.

Ecommerce

“U.S. stocks haven’t seen the worst of this year’s declines,” Bloomberg warned. “Five experts predict the worst is yet to come,” Time reported. “Prepare for a ’long and ugly’ recession,” Fortune added, topping them all.

It’s why real estate investment trusts (REITs) deliver much-needed relief from daily market stress in the form of low volatility and high yields.

More specifically, REITs are a good source of generous and steadily-growing dividends, often combined with lower volatility, making them ideal for low-risk investors.

“Their low correlation to stocks and bonds means better risk-adjusted returns from REITs in times of market turmoil, delivering stable income when it’s needed most,” Noyack Managing Principal CJ Follini said. “It’s that simple.”

Key Considerations: REITs Returns vs. Common Stock Dividends

Characteristics

REITs

Corporations

DiversificationLowLow to High
Yield Medium to HighLow to Medium
VolatilityLow to MediumMedium to High
Type of DividendUnqualifiedQualified
Dividend Tax TreatmentRegular IncomeLong-Term Capital Gain
IRA/401(k) SuitabilityYesYes
Tax Form10991099
Retain EarningNoYes
Pass ThroughYesNo
Share Counts Over timeRisingGenerally Flat or Declining

Important Reasons Why:

High(er) Yields

Remember, a REIT must distribute almost all (90 percent) of its taxable income in the form of dividends to shareholders to satisfy its tax-advantaged status. And as Nasdaq notes, REITs have increased their dividend for decades. REITs also allow investors to share in the underlying property appreciation and rental income without actually buying, selling, or managing the property. They’re required to generate at least 75% of their income from rent, interest income, and proceeds from property sales, adding to the consistency and stability of the returns.

Lower Volatility

Aside from the housing crisis, REITs are historically low-volatility investments. Overall, real estate acts as a market shocks buffer due to low correlation, and REITs have the lowest correlation with the U.S. and global equity indexes among all classes of stocks when looking at monthly total returns from 2000 through 2020.

Reduced Risk

REITs offer some of the lowest average risks, specifically “prediction risk,” or the risk that usually hits investors during high inflation periods. Importantly, they’ve actually benefited from unexpected inflation due to rent and price appreciation combined with their tax-advantaged status.

A Completely Different (and Complementary) Approach–

Noyack Capital is a family-run firm with a revolutionary concept—EVERYBODY should have access to world-class private investments.

Noyack’s balanced approach of thematically-linked investments is complementary enough to achieve scale yet diversified enough to address risk properly. They include properties that support the supply-chain infrastructure in the delivery of a particular good or service (dry warehouses, cold storage, medical offices, etc.).

The firm’s primary market segment, Commercial Real Estate, generally involves lower risk due to a supply and demand imbalance.

Increasing demand for e-commerce and supply chain infrastructure means the firm’s dividend is expected to grow over time, as is the principal value of its properties. Noyack is an early adopter in this rapidly growing market, which will continue to prove its worth as the infrastructure and logistics landscape evolves. 

We are ideally suited to sophisticated investors and those just starting out, who are looking for an opportunity to grow their portfolio and income over time at reasonable levels of risk in keeping with the individual’s investment objectives. 

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