If you’re a big yield hunter, it’s difficult to determine ahead of time which high-income investments can turn around to maul you. It brings to mind a line from the deadpan comedian Steven Wright: “Experience is something you don’t get until just after you need it.”

Hindsight often makes difficult decisions seem obvious. We’re currently struggling through a bear market that we know will end one day. Problem is, we don’t know when. Nor can we say how much longer the companies hit the worst during the slump can endure if the bear takes a turn for the worse.

High yields are nice in theory, but yield chasers always face peril. A high yield must be sustainable.

Below, I highlight a dividend payer with unique characteristics that should hold it in good stead, come what may in 2023. This real estate investment trust (REIT) also is a play on the Biden administration’s repeated vow to better manage illegal immigration. Indeed, President Biden announced January 5 that he intends to visit the southern border next week.

Challenges at the U.S. border get a lot of coverage in the mainstream press, but little attention is paid to the moneymaking potential of the federal government’s greater push for immigration enforcement.

The enduring appeal of REITs…

More about this specific REIT in a minute. But first, let’s examine why REITs overall make sense for investors who seek a steady stream of income.

As the Federal Reserve continues to tighten, conventional wisdom says that higher interest rates are bad for REITs. But rather than obsessing about the Fed’s next move and letting it dissuade you from putting money into a REIT, you’re better off focusing on the stock’s quality and long-term prospects.

REITs are all-weather, total return investments. Although the occasional bust from a financial crisis does happen, REITs generally hold their value in a down market because the rents their tenants pay are contractual obligations. Rents also tend to rise with inflation, helping offset its corrosive impact on purchasing power.

When you’re considering REITs, look for those that are consistently growing their funds from operations (FFO), which is how a REIT reports earnings. Because FFO doesn’t include gains or losses on property sales, nor depreciation, the metric gives you an idea of how a REIT is faring on a real cash basis.

You also want REITs that are in stable markets, where rents aren’t falling and vacancy rates aren’t high. Those REITs can create FFO growth by steadily raising their rents without scaring off tenants. Plus, they’re more recession-resistant because tenants know that they have a good deal.

The REIT’s management team also is an important consideration. Is there a steady deal flow as management reinvests available cash, or is the team resting on its laurels? When management has demonstrated a consistent track record of profitable deals, your money is in good hands.

I want YOU to generate income…

One REIT that fits all of those criteria is Easterly Government Properties (NYSE: DEA). U.S. government agencies lease most of the space in Easterly’s properties, so it’s a safe bet that this REIT’s leaseholders will stick around, regardless of economic ups and downs. With Uncle Sam as a tenant, Easterly is a safe haven against market crashes.

That’s especially true now that the FBI and Immigration and Customs Enforcement (ICE) are Easterly’s main tenants, accounting for about a quarter of the REIT’s income. Because of these tenants’ security concerns, their space must be designed to strict specifications, which means they can’t just move on a whim.

With a market cap of $2.5 billion, Easterly Government Properties focuses primarily on the acquisition, development and management of Class A commercial properties that are leased to U.S. government agencies through the General Services Administration.

All of Easterly’s 95 properties are currently leased for seven-year terms. The majority of the REIT’s buildings are for offices (75%), and the rest are mostly laboratories and courthouses.

Based in Washington, DC and founded in 2011, Easterly has been turning in solid FFO growth through a series of property acquisitions. Most of those properties were already occupied by a law enforcement agency, while the rest were owned by some other government agency. Given that track record of successful acquisitions and the government’s preference of leasing rather than buying space, it’s likely that management will continue finding profitable deals.

Easterly Government Properties is the only internally managed REIT with a focus on investing in U.S. government-leased buildings. That’s a rock-solid business model, because the U.S. government is the largest employer in the world and the largest office tenant in the country.

Despite its inherent stability as an income generator, Easterly’s stock price has fallen 37.5% over the 12 months, compared to a decline of 26.7% for the benchmark iShares US Real Estate ETF (IYR) and 20.% for the S&P 500.

Weighing on the stock has been the overall bear market. Also, the cost of capital has risen in tandem with higher interest rates, adversely affecting near-term growth.

However, Easterly’s operating margin is a hefty 25.8% (trailing 12 months). In its most recent quarter (Q3), the REIT posted revenue of $75.9 million, up 9.0% from 3Q 2021, and FFO of $32.4 million, up 4.6% from the same quarter a year ago (see chart).

Source: Easterly Government Properties

The REIT’s yield is a hefty 7.43%. I expect the share price to appreciate in 2023, especially if the economy comes in for a soft landing and the Fed starts to ease its tightening. Analysts expect the REIT’s revenue to grow 8.8% per year on average during the next three years.

Easterly provides the “trifecta” of income, growth potential, and value.

Editor’s Note: As I’ve just explained, Easterly Government Properties is a sturdy income-generating machine, backed by the financial might of the United States.

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John Persinos is the editorial director of Investing Daily.

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