Where To Find The World’s Best REITs

Investors who were gutsy enough to buy real estate investment trusts (REITs) at the height of the economic crisis in 2008 have been well rewarded. Not only did these REITs see their shares soar from those lows, but they’ve been treated to a surging tide of dividends.#-ad_banner-#​

Case in point: Simon Property Group (NYSE: SPG), the nation’s largest REIT.

Its stock has rebounded more than 150% in the past five years, and if you bought Simon back when it traded at $45 in the summer of 2009 and held on, then today’s $5 annual dividend would work out to be a juicy 9% dividend yield.

But this kind of window has most likely closed. Not only has the share price surge pushed the dividend yield down below 3%, but the dividends themselves are no longer growing at an impressive rate.

Simon’s Dividend Growth Is Cooling

For Simon Property Group, the era of double-digit growth in yields may have come to an end, which is a concern since its dividend yields aren’t all that compelling anyway.

Outside the U.S., it’s unclear if REIT dividends will grow any faster, but the yields are surely higher. While the Vanguard REIT Index ETF (NYSE: VNQ), America’s largest REIT exchange-traded fund (ETF), with $40 billion in assets, offers a yield below 3%, foreign REITs typically do better.

Here’s a quick profile of four of them. 

1. SPDR Dow Jones International Real Estate (NYSE: RWX )
Dividend Yield 4.6% 

With $3.7 billion in real estate assets, this is the granddaddy of the category, and its focus on Canada, Europe and Asia helps bring diversification.

In an unusual twist, more than one-third of the fund’s assets are tied up in real estate developers, and not just the REITs (that is, building owners) that many ETFs focus upon. That provides a slightly greater emphasis on growth and not just income, though the greater portfolio complexity may help explain why this ETF sports a 0.59% expense ratio, the highest in the category.​


2. iShares FTSE EPRA/NAREIT Developed Real Estate ex-US (NYSE: IFGL )
Dividend Yield 3.4%

As noted earlier, Asian real estate is in the midst of a multi-year boom, and even the moribund Japanese real estate market has rumbled to life after a long period of dormancy. Roughly two-thirds of this fund’s assets are tied up in Asia, with a considerable chunk dedicated to Japan. 

Still, concerns about slowing growth in China, which would impact all of Asia, has pushed this ETF down 15% in the past year. And shares have risen just 50% over the past five years, just a fraction of the U.S.-focused Vanguard REIT ETF.


3. Vanguard Global ex-US Real Estate ETF (NYSE: VNQI )
Dividend Yield 3.7%

Investors in search of a lower-cost path to global exposure may want to check out this ETF, which carries a 0.35% expense ratio, the lowest in the category. 

The VNQI was launched in late 2010, avoiding much of the carnage that took place a few years earlier. Earnings distributions have been somewhat erratic, but have averaged $2.05 a share over the past three years, equating to a 3.7% yield. ​


4. WisdomTree Global ex-US Real Estate (NYSE: DRW )
Dividend Yield 4.5%

This fund weights its holdings based on their absolute size of their dividends, which proved to be a bad approach during the financial crisis.

The ETF was launched in late 2007 at $50 a share, but plunged to just $15 by early 2009. It still remains quite underwater, trading below $30, even as most other REITs have made up all the ground they lost during the crisis. Hong Kong, Australia and Singapore account for half of the portfolio​.

Risks to Consider: REITs can lose value when interest rates rise as comparative yields form fixed income investments become more competitive. To some extent, REITs have lost value in the past year to reflect that concern, so they may not have much more risk, even as rates rise. 

Action to Take –> Broadly speaking, many U.S.-based REIT investments offer yields below 3%, whereas most international REITs have yields in the 3% to 5% range. All of these REIT ETFs own high-quality mid- and large-cap firms, and though shares can be volatile at times of extreme financial crisis, they are usually “steady eddies” as demand for real estate never goes out of style.

P.S. Global REITs make a great investment for yield-starved investors. But did you know that a full 79% of the world’s highest-yielding stocks are found outside the U.S.? In fact, we’ve found 93 stocks that yield 12% or more, including some of the safest, highest-yielding stocks the world has to offer. To get more information on these stocks, follow this link.