A Better Way to Play Bricks-and-Mortar Retail | ETF Trends

There has been plenty of talk about the rise of e-commerce and online retail companies with much of that coming at the expense of traditional bricks-and-mortar retailers. While the number of store closures across the U.S. is expected to jump in the coming years, writing obituaries for shopping malls may be a bit premature.

Up nearly 6% year-to-date, the Pacer Benchmark Retail Real Estate SCTR ETF (NYSEArca: RTL) is one way for investors to tap the mall theme without investing directly in retailers.

RTL tries to reflect the performance of the Benchmark Retail Real Estate SCTR Index, which is made up of shopping centers, shopping malls and similar structures that are thriving enterprises filled with retail establishments and are located in prime locations with quality tenants throughout the country.

“Within the mall sector, operators with top properties are considered better bets, in part because they should have more capital to upgrade their assets compared with those that own less-prestigious real estate,” reports Lawrence Strauss for Barron’s.

An Income Idea

RTL has a dividend yield of 4.04%, which is not only higher than that of the largest domestic REIT ETF, but well above the dividend yields on retail ETFs, too.

REITs are comprised of companies that own office towers, hotels, shopping malls and other commercial properties, offering investors exposure to the domestic economy and away from the uncertainty associated with the global supply chain, the Wall Street Journal reports.

Real estate investors also enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.

There are some potential tailwinds for RTL for investors to consider.

“Evercore ISI forecasts that the A-mall REITs will average same-store net operating income growth of 1.4% a year through 2023. That is below the 1.7% annual growth it expects for the shopping center group, showing that it could still be a tough several years ahead for mall REITs,” according to Barron’s.

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

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.