REIT ETFs: High-Yield, Relatively Low Risk

Fixed-income investments help provide investors with a stable and steady flow of cash. If you’re looking for high income with relatively low risk and solid performance, REIT exchange traded funds (ETFs) could be for you.

Real Estate Investment Trusts, or REITs, generate some of the highest yields and were one of the best performers last, writes David Fessler for InvestmentU. For instance, the Vanguard REIT ETF (NYSE: VNQ), which holds around 100 different REITs, gained 24% in 2010.  

In a low interest rate environment, REITs do relatively well because they borrow money at low rates, buy high-interest, long-term assets and investors would profit from the spread. With unemployment just below 10%, zero inflation and "quantitative easing," the low interest rate environment may stick around for a while longer.

REITs are required by law to distribute 90% of taxable income to their shareholders, which gives investors a stable dividend yield.

Recently, the Vanguard REIT index surged in activity as investors dived into the market on speculation of increased M&A activity, according to PR USA. Chatter on M&A activity rose when ProLogis confirmed that it was talking with rival AMB Property about a possible merger.

While dividends on REITs are rather attractive, investors should note that companies may cut, slash or suspend dividends at anytime, with little or no notice.

Annaly Capital Management (NYSE: NLY) and American Capital Agency Corp. (NYSE: AGNC) are two REITs that stand out from the rest of the market, as stated by iStockAnalyst. Annaly owns, manages and finances real estate investments, with assets backed by Fannie Mae and Freddie Mac. Like Annaly, American Capital also holds securities backed by Fannie and Freddie, along with Ginnie Mae. REITs that don't invest in government-backed securities usually carry higher implied risk and little or no difference in yields.

• Schwab U.S. REIT ETF (NYSE: SCHH)

• SPDR Dow Jones REIT (NYSE: RWR)

• First Trust S&P REIT (NYSE: FRI)

 

HINES reits My husband and I,are in our late 50's. We decided to invest in Hines Reits Nov.'08. Our Fin. advisor did not tell us the risks of buying the Reits at the time of our meeting,we probably would not of bought the Reits shares,if we had known. In 2009,we decided to redeem all of our Hines Reits,do to a personal emergency. We submitted the paperwork,only to find out,(according to the Hines company)we were 2 days late from the cut off. They suspended all redeeming at that time. To present,the Hines company does not know when they will take requests from shareholders to redeem shares. Submitted by socalsue (not verified) on Fri, 2011/02/04 - 11:41am » reply |

Private REITs The couple whose predicament is described in the above comment say they "decided to invest in Hines Reit," a private REIT in 2008. From my experience, it would be fairer to say that they were sold units in thes REIT by someone who was incentivized to push this product because Hines pays a very, very generous commission. Since then not only has the REIT cut its dividend (and is currently maintaining that through a return of capital) but it also has suspended its repurchase of shares (don't know if it's been restored). Anyone who buys a privately traded REIT should be ultra-sophisticated. Unfortunately sophisticated investors would hear alarms going off when someone tried to sell them this product. Submitted by Anonymous (not verified) on Thu, 2011/09/08 - 4:00pm » reply |