A Simple and Dividend-Rich Real Estate Investment

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect real estate investment trusts (REITs) to thrive over time, the iShares Dow Jones US Real Estate ETF (NYSEMKT: IYR  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%. It recently sported a 3.4% dividend yield, as well.

This ETF has performed rather well, beating the world market over the past three, five, and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 14%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
More than a handful of REITs had strong performances over the past year. Mortgage REITs (or "mREITs," to some) Annaly Capital (NYSE: NLY  ) and American Capital Agency (Nasdaq: AGNC  ) gained 22% and 53%, respectively, for example. Even more exciting, they respectively sport dividend yields of 12.1% and 14.3%! All isn't rosy, though. Changes in interest rates threaten the profitability of mREITs, and the Fed's recent QE3 plans aren't good news, either. Some mREITs have reduced their dividends and more cutting may be ahead. It's true that even a 50% cut for these two would still leave them at compelling levels, but their share prices might get a haircut, too, if investors lose confidence in them.

American Tower (NYSE: AMT  ) soared 33%. The company, recently converted to REIT status, rents tower space to wireless carriers worldwide. Bulls like its recurring revenue from long-term contracts and its potential for growth given rising demand for high-speed data, especially as 4G-based iPhone 5s sell briskly. Bears worry that the stock is less of a bargain now, after rising so much. Its competition has been busy, with Crown Castle  (NYSE: CCI  ) recently inking a lease-to-buy deal for thousands of T-Mobile USA cell towers. American Tower stock recently yielded just 1.3% in dividends.

Timber REIT Weyerhaeuser (NYSE: WY  ) surged 70%, partly on signs of a recovering housing market. It has lower debt than many peers, but it also sports a smaller dividend payout, recently yielding 2.3%. It's viewed as overvalued by some, though. One particularly promising part of its business is its thermoplastic composite operations, incorporating sustainably sourced cellulose fiber.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

How safe is Annaly's dividend? That's one question you'll find answered in the Fool's premium report on Annaly, where our top analysts give you their take on the direction that Annaly's business is moving. Click here today and lock in a year's worth of free updates, as well.


Longtime Fool contributor Selena Maranjian owns shares of Annaly Capital Management. The Motley Fool owns shares of Annaly Capital Management and Weyerhaeuser. Motley Fool newsletter services recommend American Tower. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/25/2016 4:00 PM
AGNC $20.18 Up +0.34 +1.71%
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