As the coronavirus outbreak continues to wipe out money from the U.S. stock market, investors have started to focus on safe havens. In fact, the corona scare has now fueled demand for U.S. debt, which in turn pulled Treasury yields to new record lows.
But record-low Treasury yields are a blessing in disguise for REITs. After all, REITs are known for providing attractive yields. Thus, investing in some solid REITs won’t be a bad proposition.
How Did Treasury Yields Fare?
The yield on the 10-year Treasury note dropped 7 basis points to 0.924% on Mar 5, after touching an intra-day all-time low of 0.902%. In the process, the 10-year Treasury note yield registered its 11th straight trading session of a decline. And it’s still widely expected that the 10-year Treasury yield will breach the 0.9% threshold.
By the way, the 30-year bond yield was down 6.6 basis points to 1.570%, carving out a new record low. What’s more, the two-year bond yield slipped 5.4 basis points to 0.585%, its lowest since July 2016.
What’s Impacting Treasury Yields?
Concerns about the worldwide outbreak of the coronavirus and its subsequent impact on corporate profit margins and the global economy resulted in Treasury yields hitting all-time lows. Needless to say, the coronavirus outbreak may hamper consumer spending activities and supply chains. This compelled investors to take money out of riskier assets, including equities, and take shelter in the most safe-haven asset in the world – U.S. Treasuries. And as investors have started to pour money into U.S. Treasuries, its prices have started to go up and yields have begun to decline. Bond prices generally tend to move in the opposite direction of yields.
The coronavirus, in the meantime, has infected more than 95,000 people worldwide, with at least 3,286 deaths reported so far, per the latest data from the Johns Hopkins Whiting School of Engineering’s Centers for Systems Science and Engineering. In fact, policymakers are now struggling to contain the spread of the deadly virus, and eventually its impact on the economy. In order to restrict the negative impact of the spread of coronavirus on growth and development, the House recently passed an $8-billion fund and the IMF also declared a $50-billion lending program to help out business houses.
The Fed too trimmed interest rates by half a percentage point to 1-1.25% range, in an attempt to combat the impact of the coronavirus. And market participants continue to expect the Fed to trim rates further during its Mar 18 meeting.
Which Stocks Will Record-Low Treasury Yield Drive?
With bond yields stuck at record-low levels, income-seeking investors are widely expected to turn focus to a different corner of the market — stocks of REITs. This is because the high-yielding REITs are more alluring now with the slump in Treasury yields. Thus, investing in the best REIT stocks for now seems judicious. Moreover, REITs usually have attractive yields as they are required to distribute a majority of their taxable income every year as dividends to shareholders due to the special tax treatment they receive.
And REIT stocks’ healthy yields indicate their large customer base, sustainable business model, long track of profitability and strong liquidity, which make them less susceptible to market gyrations.
5 Top Choices
Given the aforesaid positives, we have highlighted five of the best REIT stocks that should make meaningful additions to your portfolio. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Annaly Capital Management, Inc. NLY has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 2.9% over the past 60 days. The company’s expected earnings growth rate for the next quarter and current year is 4% and 6%, respectively. Apartment Investment and Management Company AIV has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 1.5% up over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 6.6% and 7.2%, respectively. New York Mortgage Trust, Inc. NYMT has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 1.3% north over the past 60 days. The company’s expected earnings growth rate for the next quarter and current year is 125% and 18.8%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here. AGNC Investment Corp. AGNC possesses a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has advanced 8.7% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 7.8% and 4.6%, respectively. NexPoint Residential Trust, Inc. ( NXRT Quick Quote NXRT - Free Report) has a Zacks Rank #2. The Zacks Consensus Estimate for its next-year earnings has climbed 0.4% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 18.9% and 17.7%, respectively.
And when it comes to dividends, Annaly Capital Management, Apartment Investment and Management, New York Mortgage Trust, AGNC Investment and NexPoint Residential Trust have a dividend yield of 12.51%, 3.2%, 13.09%, 10.53% and 2.54%, respectively.
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