Spring cleaning is almost here: it’s time to get those stocks out of your wallet

Real estate investment trusts (REITs) are meant to pass income to investors and therefore really should be managed in a conservative manner. Only that’s not exactly what you’ll get Overall net rental (LNG 0.27% ), Agricultural partners (IFP 5.74% )and Whitestone REIT (WSR 3.18% ). If you own this trio of REITs, here’s why you might want to throw them away, along with three alternatives that are likely to be more reliable over time.

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1. Safely globalize

Diversification is good for your portfolio, and it’s also good for a REIT’s portfolio. So, at first glance, one would think that Global Net Lease would be a flawless investment option, especially given its high dividend yield of 11.3%. Only this outsized return reflects the risks of this aggressively managed REIT.

On the positive side, Global Net Lease splits its portfolio into the industrial (54% of rents), office (42%) and retail (4%) sectors. About 40% of rents, meanwhile, come from outside the United States. But the externally managed REIT ended up cutting its dividend in 2020 and still has a fairly high adjusted funds from operations (FFO) payout ratio of 90%. Adjusted FFO, meanwhile, fell slightly between 2020 and 2021, which is the exact opposite of what one would expect, given that the pandemic has been such a headwind in 2020.

Investors looking for greater consistency would likely be better off with larger, more diverse peers. WP Carey ( WPC 1.66% ), even though its yield is only 5.4%. Unlike Global Net Lease, WP Carey has increased its dividend every year since its IPO in 1998, including every quarter in 2020.

2. Simple farms

Next on the household list is Farmland Partners, which owns exactly what the name suggests: farms. However, there are a few issues here.

First, the company is still grappling with the fallout from a short-seller report that caused it to cut its dividend in 2019. The second, more significant issue is that the REIT recently agreed to buy a company that will expand its business to include things like farmland brokerage and farm management. The goal is for FPI to become a one stop shop for anyone looking for agricultural services, which is great. But this is no longer just a REIT story.

If you want to own farmland and just collect rent checks, you’ll have to look elsewhere. The best option would probably be peers Gladstone Land ( EARTH 3.42% )which focuses on owning farms that grow things like fruits, vegetables, and nuts.

That said, shares of Gladstone Land have been soaring lately and the yield is near all-time lows at around 1.8%. That’s pretty much what you’d get from Farmland Partners, without the added complications of the service business.

If you want to maintain farmland exposure, this change could end up being a net benefit. But, given the big run, you might want to consider leaving Farmland Partners and just putting Gladstone Land on your wishlist for the next big sale.

3. Better options are available

Whitestone REIT owns strip malls. It is a small player in the industry, with a market capitalization of just over $600 million. While its Sun Belt focus may appeal to some, it really only has operations in Arizona and Texas, which makes it very focused. And on top of that, Whitestone REIT ended up cutting its dividend in 2020.

While the actual assets it owns may be great, there are downsides here that you can easily avoid by owning one of this REIT’s larger peers. And with a return of around 3.9%, you’re not really getting paid to stay here anyway.

An alternative includes the Dividend King, Federal Real Estate Investment Trust (FRT -0.04% ), which also has a fairly small portfolio but is packed with significant assets in the country’s top markets. Notably, this sniper has a longer dividend streak than any other public REIT. It gives about 3.7%.

Kimco ( K.I.M. -0.63% ) and Regency centers (REG 0.22% ) are two other options, posting yields of 3.3% and 3.8% respectively. Both have large, regionally diversified portfolios, including assets in the Sun Belt, for those who think larger portfolios are better. Any of this trio is likely to be a stronger option for conservative long-term investors.

Go with the best

I could say that Global Net Lease, Farmland Partners and Whitestone REIT are just bad REITs to own, but the truth is that it would really depend on the investor. However, for most income investors, there is a strong case to be made that there are better alternatives. And as you prepare to spring clean your wallet, you might want to take a look at some of these other options if you have this trio. Sometimes exchanging makes sense.

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

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