A Simple Package of Real Estate and Dividends
Nov 19th 2012 10:23PM
Updated Nov 19th 2012 10:28PM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some real-estate investments to your portfolio, the iShares Cohen & Steers Realty Majors ETF (NYS: ICF) 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.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.35%. It also recently sported a 3% dividend yield.
This ETF has performed rather well, handily 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 16%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why real estate?
As they say, they're not making any more land, so real estate tends to hold its value over time, though there can be hiccups along the way. Real estate investment trusts (REITs), meanwhile, offer an extra benefit, via their requirement to pay out at least 90% of their income in the form of dividends.
More than a handful of REITs had strong performances over the past year. General Growth Properties (NYS: GGP) , yielding 2.4% recently, gained about 44% over the year. It has emerged from bankruptcy protection with restructured debt and reported funds from operations (FFO) up 9% in its last quarter. It has been selling off its more poorly performing properties to strengthen its portfolio and pay down debt. Activist shareholder William Ackman would like to see the company sold to Simon Property Group (NYS: SPG) , but General Growth management doesn't like that idea.
Health Care REIT (NYS: HCN) gained 28% and recently yielded a solid 5%. Management has explained in a conference call that, "Our business model continues to hit on all cylinders." Earlier this year, the company acquired Sunrise Senior Living (NYS: SRZ) , boosting its elder-care facility portfolio. Meanwhile, same-stroe margins and occupancy rates have been growing.
HCP (NYS: HCP) , also focusing on health care, gained 24% and was recently yielding 4.5%. The company has seen its revenue and earnings growth soar by more than 30% apiece over the past year, and its management notes that it is raising its performance expectations for the year and seeking high-quality acquisitions. It recently invested $1.7 billion in senior housing properties. Though some worry about health-care reforms possibly reducing profits from senior properties, HCP is relatively well positioned, with a significant portion of its patients paying for their own care.
Ventas (NYS: VTR) , recently yielding 3.9%, gained 27% as well. The company recently reported earnings that more than doubled, in part because of its having acquired Nationwide Health Properties and the real estate assets of Atria Senior Living Group for $5.8 billion and $1.5 billion, respectively, among other recent deals. Last month it reported its fifth consecutive quarter of double-digit revenue growth, with FFO up 12% thanks largely to acquisitions.
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.
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The article A Simple Package of Real Estate and Dividends originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Health Care REIT. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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