A real estate investment trust (REIT) was normally a good investment to hold over the years. After all, REITs have recurring streams of income.
Tenants have to pay every month, and in return, many REITs also pay their investors dividends on a monthly basis as well. And with real estate values rising over the years, it’s been an easy investment to justify holding for long-term investors.
The BMO Equal Weight REITs Index ETF (TSX:ZRE) holds many of the top REITs you can find on the TSX. And from the period of 2014 to 2019, the stock’s risen by 28%.
It’s not an amazing return, but it’s better than the 17% increase that the TSX has gone on during that time. And on top of that, investors collected a dividend as well.
However, the coronavirus pandemic has changed all that. With many tenants now unable, and in some cases unwilling, to pay rent, it’s thrown the stability of REITs into question.
That risk hasn’t been lost on investors as the BMO Equal Weight REITs is down more than 23% since the beginning of 2020 – which is worse than the TSX’s 13% decline. There’s definitely a lot more risk investing in REITs than there was just a few months ago.
One way investors can mitigate this risk is by taking a closer look at the portfolios that different REITs have and being a bit more picky, such as investing in those REITs that have large, stable businesses anchoring many of their locations.
But in the end, there’s no perfect strategy because the longer that the pandemic lasts, the more businesses that will be affected.
And that means that the once stable REITs may not be all that safe anymore. If you’re looking for a good dividend stock, it may be time to swap REITs for utility stocks instead.
