Why VEREIT shares fell more than 10% in September

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What happened

TRUTH (NYSE: VER) The stock, which was up 43% year-to-date on September 1, fell in September, losing 10% of its value, according to data from S&P Global Market Intelligence. There was no specific news related to VEREIT during the month, but many REITs were affected as the Federal Reserve considered raising interest rates.

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So what

VEREIT is a REIT or real estate investment trust. REITs are structured to require them to issue 90% of their income as dividends, and these are often coveted dividend-paying stocks. The company merges with the leader of the REIT Real estate income (NYSE: O) to create one of the largest real estate investment firms in the world.

The two shareholder groups approved the merger in August, with VEREIT shareholders due to receive 0.705 of the outstanding Realty Income shares for each of their VEREIT shares. This means that until the merger is completed, the share price of VEREIT will be directly linked to that of Realty Income. Realty Income stock lost 17% of its value in September.

REITs as a category performed particularly well in the first half of the year, with the S&P US REIT index rising 37% through September 1. Several factors contributed to this rise, including a rebound in the economy that favored homeowners and supply chain shortages that contribute to high construction costs, putting existing real estate in a better position.

While the overall sector is still up 22% year-to-date so far, it was down 7% in September. The Federal Reserve has indicated that if inflation continues to be a problem, it will likely start raising interest rates. This applies to REITs, as REIT investors generally expect a higher dividend yield from such investments than from a Treasury bond. Since dividend yields have an inverse relationship to stock prices, this will force the price down.

Now what

VERIET and Realty Income are both strong REITs with a high dividend yield. Realty Income’s yield had fallen as the price rose, and it is now back up to 4.28%. Investors who are interested in stable dividend paying and high yielding stocks should consider purchasing Realty Income stocks, especially given its attractive low price and high yield.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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