Investors have taken to dividends over the last year or so, drawn in by current income. Volatility remains an ongoing concern, whether due to rising rates, inflation, or the growing threat of U.S. default. Some of that volatility has put pressure on real estate, but the sector can still add value to investor portfolios. That should invite investors to go deep on a dividend REIT ETF as a boost in a complicated 2023.
What’s Going on in REITs?
Yes, REITs are facing a tough time this year. Rising rates have taken their toll across the economy, and REITs aren’t an exception to that. Real estate investment trusts, as they’re known, operate as companies themselves and own or finance income-generating properties. REITs’ model owes much to mutual funds, in fact, trading publicly.
In that way, a dividend REIT ETF almost functions as an ETF of ETFs. The ETF vehicle holds a variety of REITs, gaining income from diversified sources. An ETF REIT adds one other potent benefit in mitigating the trading spreads that come with trading individual REITs. The cost of trading securities within an ETF basket can add up, while trading the ETF itself incurs one cost.
Yes, rising rates have hurt REITs, but housing has some positives. Firstly, not all REIT sectors are the same. Office REITs have struggled, of course, with workers not coming back to America’s downtowns, with an average return of -7.2%. The office sector includes 20 REITs, while the multifamily category has returned 2.9% and includes 13 REITs.
Secondly, housing starts and builder confidence did well last month. Housing starts rose 2.2% in April, while ongoing inventory struggles are only adding to builders’ momentum. Taken together, investors may want to dig deep into the ALPS REIT Dividend Dogs ETF (RDOG). The dividend REIT ETF looks across a complicated economic sector and chooses those REITs yielding the most dividends.
RDOG launched all the way back in 2008, tracking the S-Network REIT Dividend Dogs Index for a 35 basis point fee. RDOG chooses the five highest-yielding REITs within nine equally weighted segments. Notably, it also excludes mortgage REITs to avoid those REITs hurt most by rising rates. RDOG currently provides a 6.3% annual dividend yield, overall.
RDOG’s top-weighted holdings include Prologis, Inc. (PLD), American Tower Corporation (AMT), and Equinix (EQIX), weighted at 7.4%, 5.9%, and 4.4%, respectively. PLD has sat above both its 50- and 200-day simple moving averages (SMAs) since the end of April.
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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for RDOG, for which it receives an index licensing fee. However, RDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of RDOG.