Comparing Dividend Yields in REIT ETFs

June 7th at 8:00am by Tom Lydon

Yield hunters have branched into alternative segments of the market in search of income, adding real estate investment trust exchange traded funds to their dividend portfolios. However, REIT investors should consider the potential risks that the sector faces.

According to the 2012 RiskFactor Report for REITs conducted by BDO, an accounting and consulting organization, REITs identified the generally weaker global economy as the top risk to their businesses this year, along with property valuation, and almost two-thirds of REITs pointed to stagnating or declining business and real estate values and asset impairment as a cause for concern, in a press release.

The report also highlights growth and new projects for multifamily REITs but the struggling retail REITs sector due to the shift to online e-commerce.

“The real estate industry’s dependence on strong national and global economic conditions makes it vulnerable to high unemployment rates, reduced consumer spending and a lack of business growth. Obtaining the appropriate mix of debt and equity financing coupled with difficulties in determining the value of the properties are major risks to investors,” Stuart Eisenberg, partner and national director of the Real Estate practice at BDO USA, LLP, said in the press release. “In such a fragile real estate market, much of a REITs’ success depends on having an attractive property with financially stable tenants in a prime location.”

REITs are securities that trade like stocks but are required to pay out 90% of their taxable income to share holders as dividends. [Record Low Interest Rates Could Support REIT ETFs]

Some REIT ETFs include:

  • Vanguard REIT Index (NYSEArca: VNQ): expense ratio 0.1%, annual yield 3.46%
  • Guggenheim Wilshire US REIT ETF (NYSEArca: WREI): expense ratio 0.32%; annual yield 3.09%
  • iShares NTSE EPRA/NAREIT North America Index Fund (NYSEArca: INFA): expense ratio 0.48%; annual yield 2.97%
  • SDPR DJ Wilshire REIT ETF (NYSEArca: RWR): 0.25% expense ratio; annual yield 3.00%
  • iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index (NYSEArca: IFGL): expense ratio 0.48%; annual yield 4.15%

For more information on real estate investment trusts, visit our REITs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.