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  • Alex Pettee, CFA

Post-Fed Rally • REIT Dividend Hikes • Strong Housing Data

Summary

  • U.S. equity markets rallied Wednesday, responding favorably to confirmation from the Fed that it will accelerate its wind-down of monetary stimulus efforts as it attempts to cool inflation.

  • Reversing two days of losses and erasing its week-to-date declines, the S&P 500 gained 1.6% today while the Mid-Cap 400 advanced 1.0% and the Small-Cap 600 rose 1.2%.

  • Real estate equities were among the leaders today with the Equity REIT Index climbing 1.4% with 17-of-19 property sectors in positive territory while Mortgage REITs gained 1.1%.

  • Some more early Christmas gifts have arrived under the tree as the wave of REIT dividend hikes continued with boosts from casino REIT MGM Growth Properties (MGP) and cannabis REIT AFC Gamma (AFCG).

  • Powered by stronger buyer traffic, Homebuilder Sentiment improved to 10-month highs in early December, consistent with recent housing market data showing an acceleration in activity following a summer lull.

Income Builder Daily Recap

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U.S. equity markets rallied Wednesday, responding favorably to confirmation from the Fed that it will accelerate its wind-down of monetary stimulus efforts as it attempts to cool inflation without derailing the economic recovery. Reversing two days of declines and erasing its week-to-date declines, the S&P 500 gained 1.6% today while the Mid-Cap 400 advanced 1.0% and the Small-Cap 600 rose 1.2%. Real estate equities were among the leaders today with the Equity REIT Index climbing 1.4% with 17-of-19 property sectors in positive territory while Mortgage REITs gained 1.1%.

The Fed's announcements to accelerate tapering efforts in preparation for rate hikes in 2022 were broadly consistent with consensus market expectations, and investors appeared relieved that the Fed did not back down from its commitment to address the recent surge in inflation. Ten of the eleven GICS equity sectors finished higher on the day, led to the upside by the Technology (XLK) and Healthcare (XLV) sectors. Homebuilders and the broader Hoya Capital Housing Index were also among the leaders as housing market data continues to show an acceleration in activity following a summer lull.

On that note, Homebuilder Sentient data this morning was consistent with this uptrend as the NAHB reported that its Housing Market Index improved to 10-month highs in early December to 84, powered by a rise in buyer traffic and strong current sales trends. Last month in Shortages Everywhere, we discussed how surging rents - and a desire for an inflation-hedging asset - have again sparked recent demand. Remarkably, homebuilders trade with single-digit forward P/E multiples despite their strong projected growth rates and given recent signs of a late-year reacceleration in demand.

Equity REIT & Homebuilder Daily Recap

Net Lease: Today, we published Net Lease REITs: Analyzing Inflation Risk. Despite a wave of dividend hikes and robust external growth, net lease REITs have been among the weakest-performing property sectors this year amid concerns over soaring inflation and rising interest rates. Thriving in the "lower for longer" macroeconomic environment that defined the 2010s, the new regime of higher inflation rates has raised questions about these REITs' ability to continue to outperform. We’ve developed a new Inflation Hedge Factor metric to measure the inflation-hedging characteristics and potential risks. We see recent underperformance as a buying opportunity, particularly for net lease REITs that provide better inflation protection.

Single-Family Rentals: We also published a fresh report discussing Single Family Rental REITs for Hoya Capital Income Builder members and highlighted our top pick within the SFR REIT sector. SFRs are one of the great success stories of the Modern REIT Era, becoming a "core" institutional asset class and quieting the critics that questioned their operating efficiency potential. The combination of historically low housing supply and strong demographic-driven demand - with added pandemic-driven tailwinds - has sent single-family rents soaring at the fastest rate on record. Property Technology continues to be a key catalyst and we believe that the growth trajectory remains promising as the "institutionalization" of the single-family market is still in the early innings.

Some more early Christmas gifts have arrived under the tree this past week as the wave of REIT dividend hikes and special dividends continued. MGM Growth Properties (MGP) declared a $0.525/share quarterly dividend, a 1% increase from its prior dividend of $0.520. Elsewhere, cannabis REIT AFC Gamma (AFCG) hiked its dividend to $0.50/share, a 16% over its prior rate. Also in the cannabis RIET sector, Innovative Industrial (IIPR) rallied nearly 4% today after it closed on the acquisition of a portfolio of 27 properties in Colorado, Pennsylvania, and North Dakota for $72.7 million.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs advanced 0.7% today while commercial mREITs also gained 0.7%. MFA Financial (MFA) gained nearly 3% after it hiked its dividend by 10% to $0.11/share. This afternoon, TPG RE Finance (TRTX) gained 2.3% after holding its quarterly dividend steady at $0.24/share and declaring a special cash dividend of $0.07/share. Elsewhere, Ladder Capital (LADR), Starwood Property (STWD), Broadmark (BRMK), Ready Capital (RC), and Apollo Comercial (ARI) all held their dividends steady. The average residential mREIT now pays a dividend yield of 9.65% while the average commercial mREIT pays a dividend yield of 6.65%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were lower by 0.01% today and are now higher by 7.98% on a price return basis and roughly 14% on a total return basis. Yesterday, Sachem Capital (SACH) announced that it will issue a new exchange-listed bonds. SACH currently has a suite of three "baby bonds" which trade at an average current yield of roughly 7.0%. The Notes are expected to be listed on the NYSE American under the trading symbol “SCCD.”

Economic Data This Week

The busy week of economic and housing data continues on Thursday when we'll see Housing Starts and Building Permits data for November which is expected to show that construction activity accelerated last month, consistent with signs of housing industry acceleration over the past quarter.


We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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