The Case For Buying REIT Preferreds

If you're thinking about buying pref shares, here it is in a nutshell: Commodity prices are now way down and the dollar up, which may afford room for yet another Fed rate reduction. Because they sit a notch higher on the capital stack, combined with historically high spreads over the current 10 year UST, preferreds are not only a little safer than the common (provided you don't mind much lower liquidity), but also a good value play.

Consequently, they make a good, lower-beta alternative to the higher risk of capital erosion and possible dividend cuts in REIT common stocks, with additional potential upside courtesy of Uncle Ben:




With respect to AVB and ESS specifically (the two picks highlighted in the vid), see the March REIT Wrecks post entitled "Play Subrime Safely With These Residential REITs".

Disclosure: None at the time of this writing.