We’re closing in on the end of my annual navel-gazing exercise in portfolio review, and today it’s time to look at the “income” stocks in my portfolio. During the week next week I’ll catch up with a few smaller positions that don’t fit into the neat sectors I’ve divvied up thus far, like Disney, for example, and also summarize my whole portfolio and establish the watchlist — and as part of our reorganized format for this kind of stuff, I’ll post updated metrics on my portfolio and thoughts on those stocks and any commentary on those stocks or my watchlist as part of my ongoing Friday File notes to the Irregulars. Ready?

My investments that really count as “income equities” are all in REITs right now, though I have from time to time also held plenty of conventional high-dividend stocks like telecoms and utilities (including Verizon, which I just sold), MLPs, BDCs and other pass-through companies and high yielders, and I’ve always had a fondness for dividends… money that companies actually pay to you can’t be faked or fudged so easily, and it doesn’t rely as much on optimistic assessments about future growth.

REITs are Real Estate Investment Trusts, which you knew, and they are essentially set up as a way for individual investors to get access to real estate as a liquid investment. They don’t pay corporate taxes as long as they pass along 90% of their income to shareholders (for whom that money is generally taxed as regular income, not qualified dividend income), and in practice many of them pass along much more than that (cash flow is much higher than income for pretty much all REITs, mostly because depreciation and amortization come out of reported income but aren’t cash payments… and the big tailwind for REITs over the past 50 years is that most properties have gained more than enough in value, often just from the land value itself, to make up for the costs of repair or replacement of depreciating buildings, so property owners haven’t really been punished for not setting aside most of that depreciation cash for future repair/replacement the way you would have to with the equipment on a factory floor, or an automobile).

REITs are typically valued using Funds From Operations (FFO), not earnings, mostly because that helps to standardize things and smooth over the impact of purchases and sales of properties ...