Generating Big Yields With REIT ETFs

Real estate investment trusts (REITs) and the related exchange traded funds are favored destinations for yield-starved investors and it is easy to see why. For instance, the Vanguard REIT ETF (NYSEARCA: VNQ), the largest REIT ETF, yields over 4%.

While that is well above what investors will find on the S&P 500 or U.S. government debt, even juicier dividend yields can be found on some unique REIT ETFs. Take a look at the PowerShares KBW Premium Yield Equity REIT Portfolio (NYSEArca: KBWY). KBWY follows the KBW Nasdaq Premium Yield Equity REIT Index, which uses a yield-weighted methodology.

KBWY “which is almost seven years old, tracks the KBW Nasdaq Premium Yield Equity REIT Index. That index emphasizes mid- and small-cap high-yield REITs, making KBWY a nice complement to traditional large-cap strategies. The $356 million KBWY holds 29 stocks, but with a price-to-earnings ratio of over 49, it is richly valued relative to traditional small-cap strategies,” according to InvestorPlace.

Still, KBWY has a trailing 12-month yield of over 7%.

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.