the 07/21/2008

:ETF Teardown: The Best REITs

  

If a tree falls ...

With residential homebuilders such as Lennar (NYSE: LEN ) and KB Home (NYSE: KBH ) still stinging , timber sales have fallen sharply. Strong demand for performancefibers, as well as demand for higher- and better-use ruralproperties, helped Rayonier offset the decrease in timber prices, though. The timberlandmanagement company did see sales fall to $284.2 million in thefirst quarter, compared to $299.7 million last year. But earningsrose 16% to $40.6 million, compared to $35.1 million a year ago.

The near future doesn't show a lot of upside from here, though --the company anticipates reporting second-quarter and annualearnings results that are lower than last year "s, thanks toongoing softness in timber and real estate markets. The good newsfor investors is that despite the lowered forecasts, the companyannounced it will maintain its regular $0.50 dividend, giving it a healthy 4.4% yield . Despite economic real estate woes, CAPS members remain bullish ontimber, with 291 out of the 298 members rating Rayonier predictingthat it will outperform the S&P.

Looking to the Northstar

While few companies that deal in debt and securities are avoidingthe pain of the current real estate slump, small caps like Northstar may be able to take advantage of the challenging economic times.In fact, the company"s small size and significant level ofinsider ownership -- along with other impressive metrics -- capture many of the attributes that makes for a winninginvestment.

Northstar"s management is looking to take advantage of what CEODavid Hamamoto sees as some of the best market opportunities inyears. The company recently had its majority-owned health-care realestate venture, Wakefield Capital, LLC, sell $100 million worth ofconvertible preferred equity interest. The company plans to combinethe approximately $90 million it will receive from the transactionwith another $80 million it raised in May to enhance its liquidityposition and give it the flexibility to pursue opportunities.

With Northstar's stock taking another southern drop lately, the company's $0.36-per-share dividend gives it greaterthan an 18% annualized dividend yield. Not surprisingly, 295 out of321 CAPS members rating Northstar expect it to outperform thebroader market going forward.

Lead a horse to water ...

Plucking individual stocks from the real estate sector is, ofcourse, a high-risk endeavor. Investors should always perform theirown due diligence on companies rather than blindly accepting a recommendation. Afterall, even the best stock pickers can be horribly wrong.

Do you agree that real estate is poised for a rebound? Or is thebottom still a ways away? Give your own opinion at Motley Fool CAPS .