This REIT Boasts A 5.3% Dividend Yield And Massive Insider Buying

After three weeks on the slide, stocks staged a rally last week that seemed to be fueled by pervasive and lopsided bearish sentiment that had stretched prices to the downside, making a snapback inevitable at some point. Just because sentiment is overstretched, it does not assure longevity for the bullish bounce. The downtrend that began in January is still very much in place, and the big plunge on Monday is cold-hard proof of that.

The Federal Open Market Committee meets September 20-21 and it is widely expected to hike the federal funds rate by another 0.75 percentage points. Federal Reserve Chairman Jerome Powell and several of the regional Federal Reserve presidents reaffirmed last week their determination to hike rates as long as it takes to bring inflation down to its 2% target.

As the Fed hikes rates, it is also selling $120 billion worth of bonds every month to reduce the size of its balance sheet. Long-term rates are feeling the effect, with the yield on the 10-year U.S. Treasury note finishing Monday at 3.42% and closing in on its 3.49% high yield from June 15.

REIT Rebound

Despite long-term interest rates continuing to creep higher, real estate investment trusts were the best performing group among income-producing equities last week. Bouncing from oversold conditions, the iShares Cohen & Steers REIT (ICFICF
+4.2%) turned in the top weekly performance in the group; the iShares Mortgage Real Estate Capped (REM +3.0%) was also above average last week.

The Forbes Dividend Investor portfolio gained 1.75% last week, with the best performance coming from our most recent additions. We benefited big-time from the rebound in REITs. Billboard and transit advertising REIT Outfront Media (OUT +14%) had no company-specific news, but apparently the market is coming around to our assessment that the stock is dirt-cheap. It was a similar story with distribution center REIT Stag Industrial (STAG +5.5%), which yields 4.6% and pays dividends at the end of every month.

New Buy: Big Yield In The City Of The Angels

Santa Monica, Calif.-based Douglas Emmett (DEI) is a real estate investment trust and one of the largest owners and operators of Class A office and multifamily properties in affluent sections of Los Angeles, Calif. It is an office REIT, so the stock has been excruciatingly punished since Covid hit in early 2020, losing half of its value since January 2020. The market appears to have imposed much too severe of a discount on the value of this company, which owns buildings in Beverly Hills, Santa Monica and other upscale locations throughout the Los Angeles area. It rents to stable tenants, the largest of which are Warner Media, UCLA, talent agency William Morris Endeavor, and Morgan StanleyMS
. These are all tenants that need to have nice office space in these locations, even if people do not come in every day.

Year-over-year comparisons are looking favorable. Revenue this year is expected to grow 8% to $992 million, with funds from operations (FFO) up 9.7% to $2.04 per share. At 10 times FFO, Douglas Emmett trades 40% below its five-year average forward price/FFO multiple of 16.6.

Insiders seem to be convinced that Douglas Emmett is priced too cheaply, with four directors and the CEO scooping up more than $8.5 million worth of DEI stock in the past 10 days. Board member Shirly Wang, who is a big donor to UCLA, scored $6 million worth of DEI shares at $21.17 just last Thursday—less than 10 cents higher than where the stock closed on Friday.

Douglas Emmett yield 5.3% and the next $0.28 per share dividend is yours if you own the stock going into the upcoming September 29 ex-dividend date.

Current FDI Portfolio: The stocks listed below are ranked from highest to lowest on a model designed to assess value. Stocks are rewarded for superior rates of dividend growth and revenue growth, as well as for high yields and low payout ratios. Operating cash flow over the past 12 months must be positive, and sufficient to cover the dividend. They also trade at discounts to multiple five-year average valuation measures that include price to sales (P/S), price to book value (P/BV), price to current year expected earnings (P/E), price to cash flow per share (P/CF), and enterprise value/EBITDA.

Click here for instant access to the Forbes Dividend Investor model portfolio with five new buys in chemicals, mining, advertising, retail and REITs.

John Dobosz is editor of Forbes Dividend Investor, which provides a weekly portfolio of high-yielding, value-priced income stocks, REITs and MLPs, and Forbes Premium Income Report, which sends out options-selling trade recommendations on two dividend-paying stocks every Tuesday and Thursday.

NOTE: Forbes Dividend Investor is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Dividend Investor may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.