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Chart in Focus: The Top 10 Dividend-Yielding REITs

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The top ten dividend REITs

In this series, we’ll analyze how the top ten dividend-yielding REITs have performed in comparison to the S&P 500. Rising interest rates and the 2013 Taper Tantrum may present some concerns for REIT investors.

The top ten dividend-yielding REITs are illustrated in the chart below.

The SPDR S&P 500 ETF (SPY) (SPX) has generated an average dividend yield of 2% and average total returns of 12.5% between 2009 and 2016. It has recorded a dividend yield of 1.9% and total returns of 13.7% on a year-to-date (or YTD) basis. 

The Vanguard REIT ETF (VNQ) has gained 3% on a YTD basis versus the S&P 500’s 9.9% gain. The index tracks REITs, minus mortgage REITs, and it recorded a CAGR[1. compound annual growth rate] of 10.5% in dividends between 2012 and 2017E.[2. 2017 estimated] 

These REIT dividends have been projected to record a 14% drop in 2017, driven by a sharp decline in earnings. More than 50% of this decline is expected to be recovered in 2018, driven by a recovery in earnings.

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Funds from operations

The chart below depicts the five-year growth trajectory of the funds from operations (or FFO) for the corresponding REITs mentioned above. FFO plays a crucial role in determining the growth potential of a REIT. We’ll discuss the FFO of these REITs later in this series.

In the last few years, these REITs have been trading close to the lower limit of their EPS (earnings per share) multiple range of 17x–21x. The Real Estate Select Sector Index is valued at a PE of 18.6x in 2017 and 17.3x in 2018.

Some real estate dividend ETFs

The Tierra XP Latin America Real Estate ETF (LARE) and the ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN Series B ETF (MRRL) have generated annual dividends of 8.6% and ~19.0%, respectively. The Credit Suisse X-Links Monthly Pay 2xLeveraged Mortgage REIT ETN (REML) has generated an annual dividend of 18.4%.

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