Make Money in Real Estate (and Dividends) the Easy Way
Jan 5th 2013 11:00PM
Updated Jan 6th 2013 5:10PM
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 stocks to your portfolio, the Schwab U.S. REIT ETF 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. It focuses on real estate investment trusts, or REITs, which are required to pay out most of their earnings as dividends.
ETFs often sport lower expense ratios than their mutual fund cousins. The Schwab ETF's expense ratio -- its annual fee -- is a very low 0.07 %. It recently yielded about 2.5%.
This ETF is too young to have a sufficient track record to assess. 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 5%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why real estate?
Perhaps because there's a finite amount of it, real estate tends to hold its value over time, though there can be hiccups along the way. 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 real-estate companies had strong performances over the past year. General Growth Properties , for example, yielding 2.2% recently, gained about 38% over the year. It has emerged from bankruptcy protection with restructured debt and reported funds from operations 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 had agitated for the company to be sold but has recently dropped that idea, agreeing to be a passive investor. The stock is not the bargain it used to be, though.
Health Care REIT gained 20% and recently yielded 4.8%. 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 , boosting its elder-care facility portfolio. Meanwhile, same-store margins and occupancy rates have been growing, and revenue has been growing at an accelerating rate. Obamacare will boost the number of people receiving medical care, which should help REITs such as this one that focus on health-care properties.
HCP , also focusing on health care, gained 18% and recently yielded 4.4%. The company has seen its revenue and earnings growth soar by more than 30% apiece over the past year. It has been investing in senior housing properties. Though some worry that health-care reforms might reduce profits from senior properties, HCP is relatively well positioned, with a significant portion of its patients paying for their own care. Its last quarter featured the company raising $1.5 billion in capital and upping its projections.
Digital Realty Trust advanced 9% over the past year, as investors excited about the growth in cloud computing grabbed shares of the company that focuses on data-center properties. It's geographically diversified, too, with properties in the U.S., Europe, and Asia. Like many REITs, it offers a tasty dividend as well -- recently yielding 4.2%. After its last quarter, management noted: "While slow economic growth in the U.S. and abroad has delayed the decision-making process of many enterprise customers ... we are very optimistic about the growth prospects and the near and long-term outlook for our business. In fact, we are on the offensive, taking advantage of our strong balance sheet and financial resources to continue to both expand our portfolio through new development leasing and to be the consolidator in the industry consistently making accretive investments of strategic data center portfolios and individual properties."
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 Make Money in Real Estate (and Dividends) the Easy Way originally appeared on Fool.com.Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends 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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