Income-starved investors looking to boost portfolio yield often turn to ETFs tracking real estate investment trusts (REITs) for the above-average yields and reduced correlations to traditional assets, such as equities and bonds. Those investors can boost their income with some focused REIT funds, including 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.
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. KBWY’s commercial real estate exposure could benefit investors going forward.
“Although high-profile residential projects generate many of the headlines, commercial real estate activity has also been clipping along at a steady pace. Investors in real estate investment trusts (REITs) have reason to cheer this trend, as commercial real estate has been the primary driver of REIT prices over the past 12 years,” according to a recent PowerShares note.
KBWY, which turns seven years old in December and has $382.2 million in assets under management, holds 29 stocks and sports a tempting 12-month distribution rate of nearly 6.5%, one of the highest among all REIT ETFs. Of course, interest rates play a role in the REIT investment thesis and that is something investors should be aware ahead of the Federal Reserve’s December meeting.
Related: 3 ETFs to Consider for Thanksgiving Week
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.
“Although it is difficult to know for sure, I believe there is reason to be optimistic about REITs with commercial real estate holdings — even in the face of rising interest rates. US developers continue to see robust demand and are locking in rates at levels that remain low from a historical perspective. In turn, higher demand may help keep pushing prices higher, and the lower rates secured today can help keep REIT borrowing costs from rising too steeply — a combination that can provide a boost to REIT cash flows,” notes PowerShares.
For more information on real estate investment trusts, visit our REITs category.