Inflation is still a major concern for investors as CPI readings continue to clock in at record highs month after month, even as interest rates rise.
A strong M&A backdrop, rebounding service economy, and pricing power for rental operators to pass on inflationary costs to tenants are all positive catalysts for REIT performance despite headwinds related to tightening financial conditions by the Fed.
The ALPS REIT Dividend Dogs ETF (RDOG), which tracks the S-Network REIT Dividend Dogs Index (RDOGX), helps investors navigate the wide REIT landscape and does so with an impressive income kicker.
The strategy selects the five highest-yielding U.S. REITs (“Dividend Dogs”) within nine equally weighted REIT segments. Equally weighting at the individual REIT and segment level provides diversification, avoids segment biases, and helps to smooth volatility, according to ALPS.
Constituent REITs must have Trailing Twelve Month (TTM) Funds From Operations (FFO) per share greater than TTM Dividend Payout per Share (DPS), according to ALPS.
REITs outperformed broader U.S. equity markets in March, benefitting from elevated inflation and strong consumer spending.
“REITs tend to have strong pricing power during inflationary periods because they can increase rents in line with current price levels,” Roxanna Islam, CFA, associate director of research at Alerian, said.
Defensive REIT holdings, including healthcare REITs, stole the show in March while decreasing COVID restrictions continue to trend in a positive manner for the economy as a whole. Despite a volatile start to 2022, REITs typically benefit from a favorable backdrop of accelerating lease demand, higher occupancy levels, and higher rents amidst the current inflationary backdrop, ALPS wrote in an insight.
RDOG’s underlying index RDOGX yields 4.28% over a trailing 12-month period, as of March 31, which is 108 basis points higher than its starting universe (SNREIT) due to a relative overweight to higher-yielding names within the healthcare REITs and office REITs segments, according to ALPS.
RDOGX also has a higher average yield than broader indexes, with an average yield of 5.3% since inception on December 16, 2019, to March 31, 2022, compared to 3.6% from the FTSE Nareit Equity REITs Index (FNRE), according to Alerian.
Other REIT ETFs include the Schwab US REIT ETF (SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
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