If the real estate sector taught investors any lessons last year, one would be that unique approaches can and do work. Consider the ALPS REIT Dividend Dogs ETF (NYSEArca: RDOG).
RDOG tracks the S-Network REIT Dividend Dogs Index, a benchmark that’s similar to those found on ALPS’ other dividend dogs ETFs.
Part of the allure of RDOG is its allocations to faster-growing real estate segments, including industrial real estate investment trusts (REITs). RDOG’s weight to industrial REITs is higher than those found in many competing strategies.
While some analysts are speculating that industrial REITs could be confounded by weakening consumer confidence on par with retail ETFs, other data points suggest RDOG is positioned to endure retail weakness. In fact, thanks to the e-commerce boom, the ETF is poised to thrive as shoppers move online.
The COVID-19 pandemic is forcing a slew of malls and retail store closures across the world. In the U.S., many non-essential retailers are temporarily closed, and while traditional grocery stores remain open, many shoppers are opting to order from home and not risk contracting the coronavirus by venturing outside.
RDOG, Right Now: A Changing Real Estate Landscape
“Industrial real estate represents one of the hottest parts of the property market. Occupancy rates are pushing all-time highs, rents are rising, and initial guidance for 2021 is very positive. Yet some retail investors might be avoiding the industrial names on the pretext that ‘yields are too low’ and ‘stocks are pricey’,” reports Seeking Alpha.
A variety of technological themes are becoming increasingly relevant in the real estate industry. However, many of the traditional exchange traded funds addressing this sector lack the necessary exposure to this trend. For its part, RDOG features robust exposure to industrial and technology REITs, the real estate assets at the center of disruptive trends such as 5G and e-commerce.
Translation: investors should not avoid RDOG on the basis that its tech ties make it richly valued relative to old guard REIT ETFs. In fact, RDOG’s industrial REIT exposure is particularly meaningful for long-term investors.
“Net Debt/EBITDA for 2019 was 5.1x for industrial, which compares to 5.8x for the broader REIT sector. This gap has widened considerably in 2020 as industrial has continued to improve (4.8x) and retail/office has gotten worse,” notes Seeking Alpha. “Dividend payout ratios from Adjusted Funds From Operations (AFFO) are at reasonable levels, showing that the dividend increases are being well-covered from earnings growth.”
Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).
For more on cornerstone strategies, visit our ETF Building Blocks Channel.
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.