Investors who are seeking income generation may want to take a look at real estate investment trusts and sector-related exchange traded funds, especially as REITs are dishing out more yields.
“Perhaps investors should start to consider REITs as dividend growth stocks,” Todd Rosenbluth, S&P Capital IQ Director of ETF & Mutual Fund Research, writes in a research note.
Chris Hudgins, a real estate analyst for SNL Financial, calculated that 101, or 45%, of U.S. publicly traded REITs and property companies in his database have increased dividends at least once for the year ended October.
The number of REITs raising dividends is on the rise, with 88 companies increasing yields at this point in 2013 and 92 companies in 2014.
While yields on 10-year Treasuries are moving higher in anticipation that the Federal Reserve will hike interest rates for the first time in almost a decade, Hudgins noted that 12 U.S. REITs and property companies also raised dividends in October, up from seven in September.
For instance, Simon Property Group (NYSE: SPG), which raised quarterly dividends in late October by 3.2%, has raised its dividends during all four quarters of 2015 and its annual dividend is 56% higher than three years ago, Rosenbluth said. SPG is one of the largest owners of shopping centers in the U.S. and its relationship with numerous retailers will provide the company with long-term growth, according to S&P Capital IQ Equity Analyst Cathy Seifert.
Crown Castle (NYSE: CCI) has already tripled its quarterly dividends since it began issuing dividends in February 2014. S&P Capital IQ Equity Analyst Angelo Zino believes CCI will capitalize on continued growth in higher tower site rentals in an increasingly digital age.
Additionally, diversified REIT Duke Realty (NYSE: DRE) raised its dividends for the first time in five years in October. High occupancy levels in bulk distribution and improving occupancy in suburban offices could add to further rental rate increases, Rosenbluth added.
ETF investors interested in the dividend-paying REITs space can also consider REITs sector-related ETFs, including the Vanguard REIT ETF (NYSEArca: VNQ) and iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR).
VNQ’s largest weight is SPG at 8.3% of the ETF’s portfolio, along with 1.0% in DRE. The ETF’s sub-sector allocations include diversified REITs 6.9%, health care REITs 12.8%, hotel & resort REITs 6.4%, industrial REITs 4.2%, office REITs 13.6%, residential REITs 17.3%, retail REITs 24.6% and specialized REITs 14.0%. VNQ has a 3.92% 12-month yield.
IYR has a 7.2% tilt to SPG, along with 3.4% in CCI and 0.8% in DRE. The ETF’s sub-sector weights include specialized REITs 24.6%, retail REITs 19.5%, residential REITs 13.4%, office REITs 11.2%, health care REITs 8.9%, hotel & resort REITs 5.3%, diversified REITs 4.8%, mortgage REITs 4.7% and industrial REITs 3.2%. IYR has a 3.94% 12-month yield.
For more information on real estate investment trusts, visit our REITs category.
Max Chen contributed to this article.