High Dividend Stock Lesson: How To Make Money On REITs While the Real Estate Market is Low

Posted on 28 July 2011

High Dividend Stock Lesson: How To Make Money On REITs While the Real Estate Market is Low: Go to your bank nowadays and ask them about a savings account or a money market account. What type of interest rate do you think you’re going to hear? Most of the big time banks on local state and regional levels are offering anywhere from 0.1% to 0.5%, and at the smallest of banks, you might be able to find a full 1.0% on your money. Or, better yet, try opening up a CD, a certificate of deposit. You’ll get the same answer of somewhere between 1.0% and 2.0% in all likelihood, and in most cases, you’ll have to keep your money tied up for long periods of time in that CD when interest rates might return.

However, not all is lost! There are definitely ways to invest your money and get a significantly better return on your investment than these ridiculously miniscule amounts of cash that the bank is giving you.

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When people hear about the stock market and investing their money in it, they tend to get scared. They don’t really see what the use is in investing in something that is as volatile as the DOW Jones, NASDAQ, or the S&P, but there are definitely some great opportunities that they are missing out on as a result.

We’ll start with REITs. A REIT is a Real Estate Investment Trust, and there are dozens of them out there for you to invest in on the public market. Though man REITs are kept as private funds, many are public and can be traded. A REIT stock or fund is invested purely in real estate which, as we know, hasn’t exactly been a stellar sector of the economy over these last several years.

However, the benefit that you find often times with REITs is that they have ridiculously high dividend yields! A dividend is the cash that you get paid, either in the form of a check or in the form of capitalized stock, and it basically acts just like interest does in your bank. You can either get a check sent to you for the interest that your money is making, or you can reinvest that money and make interest on your interest.

We’ll take Main Street Capital Corp for example (NYSE Symbol: MAIN). This is a REIT based in Houston, TX, and it is one of the unique dividend paying stocks on the New York Stock Exchange. Main St. pays a monthly dividend as opposed to the normal quarterly or annual dividend of other stocks. Right now, the dividend yield is 8.72% for a dividend payable in August.

At its height, MAIN stock was at $19.98 per share. Imagine buying 100 shares of this stock and owning $2,000 in it at its highest point. At last check on Thursday, MAIN stock was selling for $17.90 per share, meaning your principal would have dipped down to $1,790. This covers a six month period. Over these six months, MAIN has paid out between 8% and 9% APY on a monthly basis, meaning you’d already have collected roughly $70 worth of dividends in this stock. Sure, when the stock is down, this isn’t such a great deal. However, over the past three years when the economy and the real estate world were at their worst, MAIN stock went from $15/share up to $19.98/share, and it never dipped lower than $9/share.

If you had invested $1,000 in MAIN stock in 2008, with the dividends and the increase in stock price, you’d be up to $1,600. If you invested that same $1,000 in the bank, you’d have roughly $1,030. In order to make that $600 worth of profit over a three year period, you would have needed to have a whopping $20,000 worth of an investment, not $1,000.

Now we’ll take another high dividend yield REIT, New York Mortgage Trust, Inc. (NASDAQ Symbol: NYMT). This stock was once upon a time way up to over $110/share in 2005 and has dipped all the way down into the $7/share range. Obviously, if you’ve been investing in real estate over the past several years, you know just how painful this has been. However, NYMT is still offering a 12% APY for dividends. And, just like Main St., New York Mortgage Trust has basically held its own over the last three years, fluctuating anywhere from $5/share to $9/share with that huge dividend yield.

The real catch here with REITs is that we know that real estate values will come back eventually. When the market was booming in 2005, New York Mortgage Trust was making money hand over fist. Imagine if you had the time to wait this out, collected your dividends, and ultimately ended up with thousands of shares of NYMT stock at over $100/share!

This certainly isn’t a “Get Rich Quick Scheme,” but it is definitely a powerful way to put some extra money in your investment portfolio in a hurry. We don’t suggest playing with the stock market if you’re short on money, but if you’ve got the investments to play with, investing in MAIN, NYMT, or some of the other REITs out there on the market with high dividend yields is a great way to bolster your portfolio!

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