I’ve spoken to a lot of investors who are still scared of real estate after the housing bubble burst in 2008.
Note how RWR outperformed SPY both before and after the financial crisis?
Look at FFO.
When you look at the last four quarters of FFO, you can compare it to a REIT’s annual dividend payouts to get its dividend coverage ratio.
Since Realty Income pays out $2.54 a share in dividends per year, its dividend coverage ratio is 119.7% (3.04 ÷ 2.54 = 119.68).
This tells us that the REIT is earning more in rental income than it’s paying out in dividends—the dividend is safe.
Rule #2: Look at the Portfolio The other neat thing about REITs is that they’re easy to understand.
Realty Income even breaks down its top 20 tenants and how many properties those tenants are renting: Knowing the quality of tenants and their occupancy rate is key; these are the two factors that will predict future cash flow and stock price.
Rule #3: Look at the Price The final step is something a lot of REIT investors overlook.
By carefully looking not only at how much FFO a REIT is producing but also at how much you’re paying for a piece of that FFO, you can save yourself from big price drops like the one Realty Income suffered last year.