Begin 2024 on a High Note: Why This 11% Dividend is January’s Best Investment

As we step into January 2024, it’s time to challenge the prevailing fears surrounding office real estate investment trusts (REITs). Contrary to the doom-and-gloom headlines, there’s a golden opportunity waiting for savvy investors.

Picture this: a robust, diversified closed-end fund (CEF) boasting an impressive 11.4% yield and trading at what can only be described as a steal. This is not just another investment opportunity; it’s a rare chance to capitalize on market misperceptions and secure a solid return.

Dispelling the Myths: A Closer Look at Office REITs

Freepik | evening_tao | The media is filled with stories about downturns in the office REIT market.

The media has been abuzz with tales of decline in the office REIT sector. Remember when Fortune magazine declared an ‘office real estate apocalypse’ about nine months back? They painted a picture of inevitable losses and despair. But here’s the twist: the reality has been far from that bleak forecast.

Consider the performance of giants like Boston Properties (BXP) and Cousins Properties (CUZ). They haven’t just survived; they’ve thrived, outperforming the market significantly. Even Alexandria Real Estate Equities (ARE), despite lagging slightly behind the S&P 500, posted a respectable 10.5% gain in nine months. This trio, often overlooked, has collectively outshined the broader market indices.

Spotlight on Neuberger Berman Real Estate Securities Income Fund (NRO)

• Yield and Performance: An 11.4% yield that consistently surpasses market returns.
• Discount to NAV: Currently trading at nearly a 10% discount to its net asset value – a clear bargain.
• Historical Context: Despite past dividend cuts, the fund has maintained a strong average yield, making it a stable investment over the long term.

Now, let’s zero in on the Neuberger Berman Real Estate Securities Income Fund (NRO), a standout player in this space. Despite the overarching skepticism, NRO has demonstrated remarkable resilience and growth.

It’s not just the fund’s performance that’s noteworthy; its high dividend and current price, sitting at nearly a 10% discount to its net asset value (NAV), make it an attractive buy.

Understanding the Resilience of NRO

Freepik | rawpixel.com | For long-term investors, the annual return has averaged an impressive 9.9%, making it a worthwhile investment.

It’s crucial to dive deeper into NRO’s success. The fund’s stable dividend history is a testament to its strength, even considering slight reductions in 2018 and 2021. For long-term investors, the average annualized yield has been around 9.9%, a significant return on investment.

But what about the rising office vacancy rates, as reported by Moody’s? Here’s where perspective matters. Only a small fraction (6.2%) of NRO’s holdings are in office REITs. Even if we assume a drastic scenario where office vacancies escalate, the impact on NRO’s net asset value would be minimal.

Navigating the Market’s Misconceptions

• Market’s Forward-Looking Nature: The fear-driven decline in NRO’s NAV in 2022 was an overreaction, evident in its recovery in 2023.
• Balancing Risks and Rewards: The potential risk to NRO’s assets seems minuscule compared to the discount at which it’s trading.
• The Bigger Picture: The exaggerated fears of an office apocalypse have created a unique buying opportunity for investors.

The market often reacts preemptively, and in the case of NRO, the fears of a drastic decline were exaggerated. The fund’s NAV did see a dip in 2022, but it bounced back as the market corrected its overreaction. This situation exemplifies a classic case where perceived risks overshadow actual risks, creating attractive investment opportunities.

Seizing the Moment: Why NRO is a Top Buy in January 2024

Freepik | maks_lab | NRO’s impressive dividend performance makes it an attractive investment as 2024 begins.

So, what does all this mean for you as an investor? Simply put, NRO represents a unique opportunity to invest in a high-yield fund at a bargain price. The concerns about office REITs are not only overblown but also already factored into the current prices. This disconnect between perception and reality is exactly where savvy investors can step in and make a smart move.

While the media may often sway investor sentiment with sensational headlines, a deeper analysis reveals a different story. NRO, with its strong dividend performance, minimal exposure to the fluctuations of office REITs, and current undervaluation, stands out as a compelling investment choice as we embark on 2024.

Remember, the key to successful investing often lies in looking beyond the headlines and understanding the underlying fundamentals. NRO is not just surviving the so-called apocalypse – it’s thriving, and it’s time for investors to take notice.