Is This 11%-Yielding Real Estate Stock a Buy?

Net-lease real estate investment trusts (REITs) are generally built for steady growth and income, but what about Global Net Lease (NYSE:GNL) and its 11% dividend yield? In this Fool Live video clip, recorded on Dec. 9, Fool.com contributors Marc Rapport, Jason Hall, and Matt Frankel take a closer look at Global Net Lease and what investors should know before adding it to their portfolio.

Marc Rapport: Right now, I’ve been thinking a lot about Global Net Lease, G-N-L. This is also a REIT — a real estate investment trust. They are small, they’re not one of the big ones. But they have dropped 20% since I bought them in the summer. I think they’re in a better position than it might look. They are a mix of office and industrial, they are the good, the bad, and the ugly in terms of the pandemic.

It’s an office, industrial, retail. Their industrial seems to be doing pretty well. Of course, office has struggled and retail struggled, mostly they’re over 50% is industrial, and that’s doing well. They have 312 properties, about 60% in U.S., the rest mostly in the U.K. They just bought a Walmart in the U.K. Their yield, I’m probably guilty of chasing yield. But I’m at the tender stage in my life where income matters as much as growth. I want to support the income part of my portfolio. They aren’t yielding as of today, almost 11%, which seems dangerously high to me. Their payout ratio is over 100% right now. But no, it fell. I’m sorry, I’m looking here now. It just fell to 91% in the third quarter. That’s not bad. Their FFO [funds from operations] per share has been growing. I think they show promise, and as far as the stock price itself, they’ve recovered. They fell to about $13.50 on the first of the month. They’re back up to over $15.

Matt Frankel: Their payout ratio is a little high for comfort. But I will say that industrial is an extremely hot type of real estate right now. There are a lot of key markets where industrial is virtually 100% occupied. There’s not enough supply to meet demand. There are tenants on waiting lists to get more space. E-commerce just exploded over the past year with COVID. I saw they also announced a Walmart learning center. Walmart’s becoming a more of a big tenant of theirs. But industrial is just a great play right now, and that’s a way to get some yield with it. Like I said, the payout ratio’s a little high for comfort, but not a red flag in and of itself.

Marc Rapport: Yeah, I would just ask what their ticker is. It’s G-N-L, Global Net Lease, which really does speak to exactly what they do.

Jason Hall: I want to just show this real quickly because I think it really emphasizes the important thing here, and that’s the trend. Looking at the cash payout ratio, because with REITs the regular payout ratio based on their GAAP earnings can be misleading. On a cash dividend payout ratio, here’s the key thing: It’s trending in the right direction. I think that’s the important thing I really wanted to emphasize.

Marc Rapport: Thank you for pointing that out. I appreciate it. Their tenant list, their top 10 tenants are big names: FedEx; their biggest office tenant is [Dutch multinational bank] ING.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.

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