Don't Get Duped By Senior Housing Properties' 9.2% Dividend Yield

One of the REITs that Carnevale included on the list was Senior Housing Properties (NYSE:SNH), a high-yielding healthcare REIT that is externally managed by REIT Management and Research (or RMR). Recently Rubicon wrote a detailed article on the RMR-managed REITs and specifically the recent announcement that the externally-managed REITs (managed by RMR) had acquired economic ownership of half of RMR. Rubicon explained, "RMR sold a less than controlling interest of the management company to REITs it controls, which will spin half of these shares to shareholders. In the end, RMR will still have 51.6% of the company and indirectly (through its controlled REITs) control 24.2%, for a controlled block of 75.8% - plus, a management agreement extended by 20 years, and larger holdings of its managed REITs."

The intelligent investor is one who buys sound securities and knows that his (or her) principal will be safe and he will get a fair return on his money. While SNH offers an outsized dividend yield, the company's share price performance provides us with valuable clues that the company is a higher risk alternative. There are far too many other healthcare REITs that offer less risk with much stronger shareholder alignment. By investing in SNH you are essentially speculating and there's a good chance that your dividends will be offset by your eroding capital investment. Simply put, I consider SNH gambling, not investing, and I would not recommend this REIT for any retirement portfolio.

Source: Seeking Alpha

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