REITs tend to underperform during periods of rapidly rising interest rates. Why is that? In this clip from "Real Talk" on Motley Fool Live, recorded on March 25, Motley Fool contributor Matt Frankel discusses some of the ways inflation affects data center REITs.
{% sfr %}
Matt Frankel: As far as rising interest rates, it affects them in a couple of ways. No. 1, it increases cost of capital. That's the most obvious. Pretty much every real estate stock relies on borrowed money to some extent, so the cost of borrowing goes up as interest rates rise. No. 2, on any really high dividend stock, REITs or income stocks, investors expect a risk premium over what you can get from a risk-free investment, like a treasury bond. That tends to push yields higher as rates rise, and as yields and stock prices have an inverse relationship, it tends to put pressure on the stock prices. All other things being equal, REITs tend to underperform during periods of rapidly rising interest rates. That's not to say the underlying businesses aren't doing well. Over the cycles, it tends to balance out.
10 stocks we like better than Walmart
When our award-winning analyst team has an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Stock Advisor returns as of 2/14/21
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
