Charles Lewis Sizemore, CFA

About the Author Charles Lewis Sizemore, CFA

Charles Lewis Sizemore, CFA is the founder and principal of Sizemore Capital Management LLC, a registered investment advisor. Charles has been a repeat guest on CNBC, Bloomberg TV and Fox Business News, and has been quoted in Barron’s Magazine, The Wall Street Journal and The Washington Post. He is a contributor to Forbes Moneybuilder, and has been featured in numerous publications and well-reputed financial websites, including MarketWatch, SmarterAnalyst,, InvestorPlace, GuruFocus, MSN Money, and Seeking Alpha. He is also the co-author, along with Douglas C. Robinson, of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008). Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar. He also maintains the Chartered Financial Analyst (CFA) designation in good standing.

REITs On Sale Again: (STAG) (O)

As we jump into May, I can find very little cause to complain. The Dividend Growth Portfolio is off to a solid start, up 5.7% through April 30, net of all fees and expenses.  This compares to a total return in the S&P 500 of just 1.9%. The portfolio’s high allocation to energy and to non-US stocks have been major drivers of performance, and I continue to view these areas as being particularly attractive.

Alas, all the news can’t be good. REITs—which make up about a quarter of the portfolio—are suffering their worst correction in two years. As an example, Realty Income Corp (NYSE:O), of the highest-quality blue chips in the REIT space, is down about 15% from its late January highs and now yields about 4.8% in dividends. That’s a comfortable spread over the 10-year Treasury of about 2.8%.

Stag Industrial Inc (NYSE:STAG), a smaller and more speculative REIT holding of the Dividend Growth portfolio, has seen an even bigger sell-off. STAG is down about 21% from its recent highs and now yields over 6% in dividends.


I will save you the details of a REIT-by-REIT breakdown, but suffice it to say that the entire sector is down significantly from its January highs.

This begs two questions:

  1. Why the price declines?
  2. What do we expect going forward?

Part of the reason for the decline is simply profit taking. REITs, along with most other income-oriented assets, had a monster 2014, and some of what we’re seeing in 2015 is nothing more than the ebb and flow of the market.

We also have to remember that, as income-oriented assets, REITs are extremely sensitive to changes in bond yields. A REIT priced to yield 3%-4% in dividends is very attractive in world in which the 10-year Treasury only offers 1.7%. But in a world with 3.0% Treasury yields, they make a lot less sense.  So, REIT shares tends to have outsized price movements as traders try to divine the direction of bond yields. And after falling sharply earlier this year, bond yields have been on the rise.

This brings us to the more important question of what we should expect going forward. And on that count, I’m very bullish on REITs at current prices.

To start, I don’t expect to see bond yields rise much from current levels. Over the next 5 years, I expect the 10-year Treasury to bounce around in a range of about 2% to 3%. But shorter term, over the next 9-12 months, I expect that range to be lower, around 1.6% to 2.6%.

To some extent, this is a guessing game. The market has a mind of its own, and we can only work with the limited information we have. But given that overseas yields are much lower than US yields (German and Japanese 10-year yields are currently 0.37% and 0.36%, respectively) and that the Fed has given no indication that it intends to raise short-term rates aggressively, higher US bond yields don’t seem very likely.

On balance, this is a good backdrop for REITs.

What does this mean for the Dividend Growth portfolio? I expect to do a little portfolio pruning over the next quarter, and this may including rebalancing my existing REIT positions or even adding new REIT positions if market conditions allow.

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