Real estate investments trusts (REITs) have the potential to give investors monthly income to get an added dose of yield to hedge inflation in the current market environment. A combination of monthly distributions and price appreciation in a rising real estate market can open up these types of opportunities.
In particular, investors can look at the Invesco KBW Premium Yield Equity REIT ETF (KBWY). The fund specifically follows the KBW Nasdaq Premium Yield Equity REIT Index (Index). The fund generally will invest at least 90% of its total assets in the securities of small- and mid-cap equity REITs that have competitive dividend yields and are publicly traded in the US that comprise the Index.
Keefe, Bruyette & Woods, Inc. and Nasdaq, Inc. compile, maintain and calculate the Index, which is a modified-dividend yield-weighted index that seeks to reflect the performance of such companies. The fund comes with an expense ratio of 0.35%.
As mentioned, REITs can offer investors fixed income benefits. KBWY is one to consider for passive income with higher yields than safe-haven government debt that may not be able to keep pace with inflation.
As of February 22, the current 30-day SEC yield is 6%. The 12-month distribution rate is currently pegged at 5.18%—all well above safe-haven government debt yields as long as investors are willing to take on the additional credit risk.
Price Appreciation in Tandem With Income
KBWY has been pushing higher within the last year. The fund is up 11% and should continue to gain strength in a real estate market that features tight supply coupled with high demand.
The fund presents an ideal growth option given the current portfolio allocation. Rather than seek the confines of safe haven large-cap equities, growth is the primary factor of focus.
As such, the portfolio mix skews towards small-cap names. In terms of factor focus, KBWY tilts towards value and a blended factor mix.
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