Market Overview

REIT ETF Dividends Are Hanging Tough

REIT ETF Dividends Are Hanging Tough

Dozens of energy companies have cut or suspended dividends since the start of 2016, indicating that projections for slower S&P 500 divided growth this year are on pace to come to fruition. The news is not all bad for income investors as real estate dividends are growing.

Real estate investment trusts (REITs) and the corresponding exchange-traded funds faced a trying environment in 2015, as investors anticipated the Federal Reserve's first interest rate increase in nearly a decade, but that did not prevent many investors from searching for yield with REIT ETFs.

However, ETFs such as the Vanguard REIT Index Fund (NYSE: VNQ) remain popular with advisors and investors. With above-average yields being one of the primary reasons income investors turn to REITs, it is notable that the asset class is participating in the recent dividend growth seen throughout the broader financial services sector. Real estate stocks will be classified as financial services names until late August when real estate separates into the eleventh S&P 500 sector.

“Despite the pressure on REIT stocks to start 2016 amid concerns about a slower U.S. economy, investors put $701 million of fresh money into REIT ETFs, according to SSGA data. S&P Global Market Intelligence thinks one of the appeals of a diversified approach to investing in REITS is their different asset class categories to mitigate risk in any one area of real estate and high cash flows to support dividends,” said S&P Capital IQ in a new research note.

Related Link: Healthcare REITs Down On Brookdale, HCP Guidance


The research highlighted two new additions to the REIT ETF fray that could be worth examining as real estate inches closer to becoming the newest S&P 500 sector – the Real Estate Select Sector SPDR Fund (The)(NYSE: XLRE) and the Guggenheim S&P 500 Equal Weight Real Estate ETF (NYSE: EWRE).

XLRE and the Financial Services Select Sector SPDR Fund (The) (NYSE: XLFS) debuted in October, becoming the tenth and eleventh members of State Street's popular sector SPDR lineup.

EWRE debuted in August as the first equal-weight real estate ETF. The ETF's lineup is comprised primarily of equity REITs, which have a history of providing consistent, above-average dividends, which can be used to meet current income needs or reinvested to accumulate wealth, said Guggenheim Managing Director William Belden in a statement.

“According to SNL Financial, 13 North American real estate companies, 10 of those based in the United States, boosted dividends in January. In 2015, 118 companies hiked dividends and all of the companies that raised dividends in January last did so between October and December 2015. Six of the ten companies returned 5 percent or more income to shareholders,” said S&P Capital IQ.

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