Tap into strong dividend income via REIT ETFs.
With increasing talk of a recession and with inflation running at the highest levels since the early 1980s, there are few places to hide on Wall Street in 2022. However, one area that is increasingly of interest among traders is property — specifically, publicly traded investments structured as real estate investment trusts, or REITs. This special class of corporation is given preferential tax treatment to finance its real estate operations, but in turn these trusts must deliver 90% of taxable income back to shareholders. The result is both a play on real property and an asset that is guaranteed to deliver dividends. The following seven REIT exchange-traded funds, or ETFs, all offer different ways to invest in these kinds of companies. All dividends are calculated as a trailing-12-month yield.
Vanguard Real Estate ETF (ticker: VNQ)
Hands down, the leader among REIT ETFs is this Vanguard fund, which commands almost $40 billion in assets. It comprises about 170 holdings, ranging from telecom REIT American Tower Corp. (AMT) to warehouse operator Prologis Inc. (PLD) to data center operator Equinix Inc. (EQIX), in addition to what you may typically think of via commercial real estate companies. With a rock-bottom expense ratio of just 0.12%, or $12 annually in fees on every $10,000 invested, it’s also incredibly affordable in addition to being incredibly diversified.
Dividend yield: 3.1%
Real Estate Select Sector SPDR Fund (XLRE)
Another leading REIT ETF is this sector SPDR fund that boasts more than $5 billion in assets. Unlike the prior Vanguard option, however, it offers a much narrower range of real estate companies with a total portfolio of only about 30 stocks. You don’t sacrifice much yield for this approach, and it’s worth noting that year to date in 2022, the more focused approach of XLRE hasn’t diverged much from VNQ from a share price perspective. However, over the long term, there is divergence between these funds — and XLRE comes out significantly ahead, with more than twice the returns over the last five years than the more diversified Vanguard option. Past performance is no guarantee of future returns, but it’s still noteworthy.
Dividend yield: 3.1%
Vanguard Global Ex-U.S. Real Estate ETF (VNQI)
Another foundational REIT ETF to consider, the I in VNQI stands for an international approach that looks outside domestic companies and instead focuses on real estate investments that are overseas. To be clear, this is an “ex-U.S.” fund that expressly excludes U.S. companies, so you may want to consider this in addition to one of the other funds rather than in place of it. However, it is a simple way to achieve geographic diversification, as well as to supercharge your yield. About 700 stocks make up the portfolio of this offering, scattered around the world in a truly diverse strategy that includes about 23% in European markets such as France and Germany, 22% of assets in Japan, and almost 20% or so in emerging markets with higher volatility but also higher growth potential.
Dividend yield: 7.9%
iShares Mortgage Real Estate ETF (REM)
Looking beyond the broad-based REIT funds, some investors primarily gravitate to REITs in pursuit of higher yields than what they may find in other sectors. This is where this mortgage-focused REIT fund shines, as it provides a huge payday that is roughly five times that of the typical S&P 500 stock. Of course, it achieves this by cutting out the rest of the REIT universe and instead just zeroing in on a group of mortgage-related REITs via 30 or so total stocks. There is certainly risk here by focusing on this subsector of companies, particularly because these mortgage companies are vulnerable to rising interest rates as they tend to borrow cash heavily to finance operations and now have to do so at higher cost. However, if you don’t mind that risk, you can tap into huge yield via REM.
Dividend yield: 8%
iShares Residential and Multisector Real Estate ETF (REZ)
On the flip side of chasing yield via mortgage REITs, the nearly $1 billion REZ fund offers a play on real estate that is limited only to U.S. residential, health care and self-storage enterprises. In other words, it has none of the quirkier plays in the sector but instead a clear focus on what most investors tend to think of when they consider REITs. The yield admittedly is less attractive, but if your primary concern is a hedge against inflation with a play on real estate rather than a telecom operator that happens to own a lot of real estate for its towers, this ETF is worth considering.
Dividend yield: 1.9%
Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
A very different approach is to ignore the high-yield mortgage paper REITs and the conventional real estate players in office parks or residential high-rises. That’s the strategy deployed by this niche Pacer fund, which is solely concerned with industrial properties structured as REITs. These include Duke Realty Corp. (DRE), Stag Industrial Inc. (STAG) and Rexford Industrial Realty Inc. (REXR), to name a few. It’s the smallest fund on this list and offers the lowest yield, but at $300 million in total assets, it is a well-established niche REIT ETF that may appeal to certain investors.
Dividend yield: 1.4%
Global X SuperDividend REIT ETF (SRET)
The name says it all, as SRET is designed to only target the highest-yielding REITs in the world. The yield isn’t the highest on this list, as the mortgage REIT fund from iShares offers a higher payout, but SRET is not focused on a single sector. While the portfolio is limited to just 30 total holdings, it spans a wide array of businesses, including casino operator Gaming and Leisure Properties Inc. (GLPI), health care facilities REIT Physicians Realty Trust (DOC) and over-the-counter Singapore-based industrial REIT Mapletree Industrial Trust (MAPIF). If you want a one-stop shop that doesn’t rely on a single flavor of REIT but still provides above-average yield, SRET is worth a look.
Dividend yield: 7.5%
7 best REIT ETFs to buy:
— Vanguard Real Estate ETF (VNQ)
— Real Estate Select Sector SPDR Fund (XLRE)
— Vanguard Global Ex-U.S. Real Estate ETF (VNQI)
— iShares Mortgage Real Estate ETF (REM)
— iShares Residential and Multisector Real Estate ETF (REZ)
— Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
— Global X SuperDividend REIT ETF (SRET)
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7 Best REIT ETFs to Buy originally appeared on usnews.com
Update 07/28/22: This story was published at an earlier date and has been updated with new information.
