Real estate investment trusts or 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, and receive at least 75% of that income from rents, mortgages and sales of property.
Additionally, the actively managed InfraCap MLP ETF (NYSEArca: AMZA) can also help investors gain a pure play exposure to master limited partnerships. The fund invests in midstream MLPs that are principally involved in the gathering, processing, transportation, and storage of crude oil, natural gas, natural gas liquids, and refined products. AMZA has a 1.93% expense ratio and a 18.94% distribution rate as of April 5.
MLPs don’t make their money based on oil or gas prices. Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around.
To qualify as an MLP, the companies pass through at least 90% of their income to investors, making the assets an attractive yield-generating investment.
For more information on dividend-paying stocks, visit our dividend ETFs category.