These types of shorter-term REITs may be a good way for income-minded investors access yield generation in a rising rate environment as short-term contracts allow businesses to more quickly reprice and adapt to changing market environments. Due to the REITs structure that allows the majority of revenue to be distributed as income to shareholders, businesses’ prudent reactions could translate to higher returns for investors. NURE shows a 3.54% 12-month yield.
Conventional wisdom makes us think that most income assets are sensitive to rate changes because higher rates usually mean their prices fall and vice-versa. REITs, though, are much more complex. Interest rates typically rise during a strong economy,and while higher short-term rates may have a negative impact on real estate debt, the benefits of a stronger economy may also outweigh the downside from slightly higher rates.
Moreover, a stronger economy could also support profitability and yield of REITs. An improving economy could provide greater opportunity for income generation from each property within REITs as properties are more likely to appreciate due to greater demand. Furthermore, rising employment drives higher occupancy rates, which translates to greater rents and greater profitability or higher payouts for investors.
Investors interested in gaining broad exposure to the dividend-paying REITs can look at ETF options like the Vanguard REIT ETF (NYSEArca: VNQ), iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) and Schwab US REIT ETF (NYSEArca: SCHH), among others. Additionally, for those interested in the potential growth of small-cap REITs, investors can look to the targeted IndexIQ US Real Estate Small Cap ETF (NYSEArca: ROOF).