A 2CHYP subscriber recently inquired about a large cap REIT portfolio.  We liked this idea as different market caps generally have different investment characteristics that make certain groups preferable to investors with certain goals.  They often come in the form of tradeoffs.

  • Small cap REITs have higher dividend yields and more explosive growth potential, but this comes at the cost of higher risk and volatility.
  • Large cap REITs are the opposite in that they generally come with lower yield and higher valuations, but far greater stability.

Anyone investing in a broad bucket of stocks like a market cap focused index will have to deal with both the positives and the negatives of these tradeoffs.  Those who are more selective, however, can get the best of both worlds.

Already in 2CHYP, there are a good number of large cap REITs that have the stability and liquidity that comes from investing in large cap stocks, while also providing favorable valuation and an oversized dividend yield.

High Yield, Large Cap REITs in 2CHYP

On average these large cap REITs have an 8.99% dividend yield and we think they can grow earnings and dividends over time.  It is the valuation that makes this work as each REIT produces enough funds from operations to fully cover the dividends.  These stocks are selected based on fundamental analysis which leads us to believe they are strong for the long term.

In terms of market capitalization GOV could also be considered large cap as it is over $1B, but I do not think GOV has the stability that one would associate with large caps.  While I think it is opportunistically priced, GOV does not belong alongside the other large caps due to its volatile trading behavior.

At 2nd Market Capital, we invest alongside our clients.  We own each of these stocks because I believe they will generate favorable returns.