Little did I know when I took this photo in front of Twitter HQ in San Francisco on Tuesday… The building would be shut down and all employees locked out two days later. What impeccable timing I had!
Brad outside Twitter HQ earlier this week
However the saga plays out, I am now glad I have a photo right before the big burn… or the big bang.
I spent the week in San Francisco at an interesting time in Silicon Valley and the financial world.
But my focus while there was to meet with the CEOs and managers of one of my favorite investments – real estate investment trusts (REITs). Despite taking a hit along with the overall market this year, many of them continue to pay out increasing income to shareholders.
Next week, I’ll share what I learned from talking to some of the smartest people in the space at the REITworld conference, how they’re able to continue paying out and increasing their dividends, and what they see ahead.
For today, I’ll dive into some reader questions we’ve gotten, starting with one that’s top of mind for most investors right now…
Remember: While we can’t give personalized investment advice, my team and I read every piece of feedback that comes in.
And we’ll share our take on the biggest issues on your minds. If you have any questions or comments, please write to us here.
What are your thoughts about digital dollars in America? When it might happen and strategy? – Nancy P.
Brad’s Response: I want to start off by saying, I’m no expert on digital currency.
So to be clear, I cannot give you a “when” or a strategy. I stick to what I know, which has served my career well.
I have been bearish toward crypto and digital dollars for a long time. And now even more so because of the extreme volatility (as we’ve witnessed lately).
My experience has not been so pleasant and came by way of my son’s late-night online crypto casino speculating.
Back in 2021, my son won a small crypto fortune playing Gems Bonanza, an online video game. I wrote about it previously, including a video of the fateful moment when he hit the jackpot.
He won close to $64,000 after betting $10. I suggested he put one-third of the winnings into dividend stocks, another third in savings, and the final third into digital currency.
He wanted to put all the money in the latter, but agreed to diversify into other stocks and cash as I suggested.
When it came time for him to file his 2021 tax return, I found out he had lost all his initial crypto investments. And to my surprise, he’d gone further and sold out of the safe dividend stocks to reinvest in crypto.
Long story short, he lost two-thirds of his newfound wealth and had to use a chunk of his savings to pay the taxes. The only money he didn’t lose was what he put into a hard asset when he bought a car (an old BMW I once owned).
This was a tough lesson for my son, but I think now he knows the difference between investing and speculating.
(By the way, had my son put all of his newfound money in dividend growth stocks, he would have been up around 10% today.)
Now, I’m not knocking all crypto and digital currencies, but I want to make sure I stay in my lane of expertise.
And one of those lanes is REITs, which happens to be one of the subjects of the next question.
Good afternoon, I read your article about Farmland Partners (FPI). What are your thoughts about the iShares MSCI Global Agriculture Producers ETF (VEGI)? Thank you – Robert M.
Brad’s Response: I met with FPI’s CFO, James Gilligan, this week at REITworld. And I remain as extremely bullish on farming as ever. It’s a property sector with strong demand characteristics.
Food consumption is one of the most basic human needs (you’ve got to eat) and supply is shrinking (they’re not making anymore land). Most importantly, farmland performs well in inflationary environments.
VEGI is an ETF that provides investors direct exposure to companies that produce fertilizers and agricultural chemicals, farm machinery, and packaged foods and meats.
Its expense ratio is 0.39%, mostly in line with other sector-specific ETFs. Its assets under management are approximately $320 million. And VEGI has a global investment mandate, with 158 holdings with key exposure in the US (61%), Canada (7%), India (4%), Norway (4%), and Japan (4%).
VEGI is up 6.5% year-to-date and it yields around 1.5%.
I have not done any deep research on this ETF, so I’m not in a position to provide a recommendation. However, I plan to take a closer look at this one myself, as it could become a good pair trade with FPI
By the way, there’s another farming REIT named Gladstone Land (LAND) that invests in specialty crops. I do like this one, but shares are expensive now and I would wait on a pullback.
And last but not least…
Your Mailbag feature is an excellent resource for learning, and I hope you will expand it. You have addressed some of the misunderstanding between the REIT 90% or greater law versus the cash dividend payout ratio. Here’s my question: If a company has healthy dividend payout ratio of 60-70%, typically, what would the other 30-40% represent? – Rick H.
Brad’s Response: Thank you, Rick. I’m glad you enjoy our Friday Reader Mailbag.
In answer to your question, the other 30-40% could be cap ex (capital expenditures) related to tenant improvement (TI) costs such as painting, floor covering, and demising walls, and leasing commissions (LC).
Typically, brokers get paid commissions to lease space and the landlord bears that expense. So if you see the words “TILC,” that refers to tenant improvements and leasing costs. There are many other acronyms in the REIT sector for those still learning the ropes. And I’m looking forward to addressing them all in my new book.
As always, thank you for the opportunity to be of service.
Don’t forget to tune into the news Monday morning. My Twitter photo may be historically significant documentation one day… I would love to hear your thoughts on the whole situation. Please share your opinion with us here.
And again, next week, I will share more about my experience at the REITworld conference and the other significant locations I visited in San Francisco.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily