Diversified REIT ETFs for Dividend Yields
July 1st at 5:00pm by Tom Lydon
Real estate investment trusts and related exchange traded funds were pressured during the Fed “tapering” scare. Nevertheless, a diversified REIT fund helps long-term investors generate stable yields.
Instead of trying to time the exact bottom in a REIT stock, a person can build up a watch list or hold a diversified REIT ETF portfolio that offers a great option for individual investors who are looking for a “one stop shop,” writes Charles Sizemore for Forbes.
For example, Sizemore points out a handful of broad large-cap REIT ETFs, including the Vanguard REIT ETF (NYSEArca: VNQ), which has a 3.37% dividend yield and a 0.10% expense ratio, the SPDR Dow Jones REIT (NYSEArca: RWR), which has a 2.84% dividend yield and a 0.25% expense ratio, the iShares Cohen & Steers Realty Majors (NYSEArca: ICF), which has a 2.86% dividend yield and a 0.35% expense ratio, and the iShares Dow Jones US Real Estate ETF (NYSEArca: IYR), which has a 3.52% dividend yield and a 0.47% expense ratio. [ETF Chart of the Day: Real Estate Investment Trusts (REITs)]
The four ETFs follow a slightly different indices to track the REIT sector, but their top holdings are relatively the same, with names like Simon Property Group, which is the largest holding in all four funds, HCP Inc., Public Storage, Vornado and Equity Residential.
Potential investors should be aware that some REITs, notably Vornado, have shifted away from pure rent collectors to “deal making” growth through property speculation.
Since the four large-cap REIT ETFs track the same group of companies, Sizemore suggests picking the ETF with the highest yield and lowest management fees. The yields on VNQ and IYR standout from the bunch, but VNQ is the cheapest. Moreover, Sizemore believes VNQ is a “purer” play on actual property owning equity REITs – IYR has exposure to mortgage REITs, which have exposure to mortgages and mortgage derivatives, and non-REIT development and holding companies. [More Glum Headlines for Mortgage REIT ETFs]
For a more balanced approach to the REITs sector, investors can also include exposure to small- and mid-cap REIT ETFs, such as the PowerShares KBW Premium Yield Equity REIT Portfolio (NYSEARca: KBWY), which has a 4.35% dividend yield and a 0.35% expense ratio, and the IQ U.S. Real Estate Small Cap ETF (NYSEArca: ROOF), which has a 4.48% dividend yield and a 0.69% expense ratio. Potential investors, though, should know that ROOF includes both mortgage REITs and traditional equity REITs.
Investors can also cut and slice the REITs market into various sectors, such as the iShares Industrial/Office Real Estate Capped ETF (NYSEArca: FNIO), which has a 2.72% dividend yield and a 0.48% expense ratio, iShares Retail Real Estate Capped ETF (NYSEArca: RTL), which has a 2.95% dividend yield and a 0.48% expense ratio, and the iShares Residential Real Estate Capped ETF (NYSEArca: REZ), which has a 2.96% dividend yield and a 0.48% expense ratio.
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. 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.