Real estate investment trusts (REITs) and sector-related exchange traded funds are a good source of attractive payouts in a low-yield environment.
REITs are securities that trade like a stock and invest in real estate directly through property ownership or mortgages.
Consequently, revenue are mainly generated through rents or interest on mortgage loans. To qualify for special tax considerations, the asset also distributes the majority of income, about 90% of taxable profits, to investors as dividends.
Related: Prepping for Wider REITs ETF Sector Adoption
Most REIT ETFs have solid dividend yields, but the Global X SuperDividend REIT ETF (NasdaqGS: SRET) truly tempts with a trailing 12-month yield of nearly 8%.
SRET combines the familiarity of U.S. REITs as such fare accounts for over three-quarters of the new ETF’s weight with the yield advantage of Australia. Australian REITs account for nearly 11% of SRET’s, which could prove advantageous given that country’s historically low interest rates.
“SRET weights its 30 constituents differently from its segment peers in two distinct ways: dividend selection and equal weighting. The fund selects 30 REITs from all over the world (but mostly the U.S.) on the basis of the highest dividend yield. SRET also weights the 30 REITs it selects equally, making it the only fund of its type not to weight its holdings by market cap. As a result, SRET has a distinct small-cap bias,” according to a Seeking Alpha analysis of SRET.
When S&P Dow Jones Indices and MSCI announced they would create an independent real estate sector, J.P. Morgan projected that active equity funds were so underweight toward REITs that the new sector could cause $100 billion flows to the category. Since the newly minted sector would rival in size to utilities, telecoms and materials sectors, a number of fund managers who have not included REITs exposure may eventually bulk up on real estate.
SEE MORE: 44 Best REITs ETFs to Generate Yields
“SRET also makes distributions on a monthly basis, providing a regular source of income for a portfolio. In terms of assets under management, SRET is small – only $32 million. So there is a chance that it may not survive an eventual culling of low-asset ETFs,” adds Seeking Alpha.
For more information on real estate investment trusts, visit our REITs category.