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This Fund Holds the
Top Ranking in its Category and Yields 21.4% |
Published:
June 16, 2008
Cohen & Steers
Premium Income Realty Fund (NYSE: RPF, $17.68)
invests
in
common and preferred shares of real estate
investment trusts.
The largest concentration, or about 20% of
the $872 million portfolio, is in recession-proof healthcare
REITs like Ventas (NYSE: VTR) and Nationwide Health (NYSE: NHP).
Another nearly 20% is tucked away in safe preferred shares
issued by REITs. The balance is spread across several different
industries, with the heaviest weightings in apartments, offices,
and regional malls throughout the U.S.
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The fund does use leverage to juice portfolio returns. To offset
the risk of rising debt costs, the fund also trades interest
rate swaps. Although the swaps have locked in borrowing costs at
about 4% for the next three years, leverage and swaps do add a
layer of risk that could increase volatility.
Dividend: RPF pays a regular monthly
dividend, which has grown an average +7.8%
annually over the past five years. The current
dividend rate of $0.16 per
share plus a year-end capital gains payout of $1.80 per
share amounts to
$3.72 annually. That gives RPF a beefy 21.4% historical
yield at today's share price.
So far this year, the monthly distributions have consisted
of roughly equal doses of income from the portfolio
dividends and non-taxable return of capital.
The return of capital portion, which accounts for about 25% of the
distribution, is not taxable. Instead, the amount lowers your
cost base when you sell the shares.
Another 25% of the
distribution, which comes from investment income, is taxed
at your ordinary income tax rate. The year-end capital gains
portion of the distribution, which last year accounted for about
about half the total payments, is taxable at
the long-term capital gains rate of 15%. Given the breakdown, the fund is
suitable for either a taxable or tax-advantaged account.
You can elect to take your dividend in additional shares of the
fund.
For more information on the dividend reinvestment plan, you can
call Cohen & Steers' investor relations at 1-800-330-7348.
Performance: This fund ranks in the top
1% of its REIT fund category for delivering exceptional average annual
returns (including share price gains and reinvested dividends)
of +16.5% over the past five years. That's
twice the S&P
500's annual returns over the same period.
However, the fund can be volatile and should be viewed as a
long-term holding. After racking up returns of close to +60% in
2006, the fund followed its REIT fund peers into a downward
spiral, losing a third of its value last year as investors
rotated out of the sector. A sharp rebound this year has put RPF
in the win column, as the fund has virtually recovered from last
year's trouncing with year-to-date returns of +25%. Management
keeps about 1.10% of assets, or about $9.6 million annually,
for fees and expenses.
Outlook/Valuation: Over the long-term, we
expect the fund will continue outperforming the S&P 500,
generating average annual returns in the high double-digits
just as it has over the past five years.
As a
long-term investment, RPF is suited for investors willing to
take on a moderate degree of risk and volatility in return for a
generous monthly income stream and share price gains.
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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