Investing in real estate can be a tedious task for investors, considering the high complexity and capital required to invest directly in physical assets. Hence, investing in REIT (real estate investment trust) stocks could be a better and easier alternative. REITs are special-purpose vehicles that own, operate, and finance income-producing properties, including commercial, residential, and others. What’s more, REITs are expected to pay at least 90% of their taxable income as dividends to shareholders, which makes them an interesting income-earning opportunity.
An even better alternative is to invest in Real Estate ETFs that give exposure to a broad range of REIT companies from different sub-segments. We used the TipRanks Compare ETFs tool for Real Estate ETFs to explore three ETFs with the highest dividend yields. These include Vanguard Real Estate ETF (VNQ), SPDR Dow Jones REIT ETF (RWR), and Real Estate Select Sector SPDR Fund (XLRE).
TipRanks’ ETF Comparison Tool enables the comparison of ETFs based on several parameters, including AUM (assets under management), funds flow, expense ratio, technicals, dividend analysis, and performance over different periods. Let’s learn more about these Real Estate ETFs and which one is the best pick.
Vanguard Real Estate ETF (VNQ)
The Vanguard Real Estate ETF seeks to replicate the performance of the MSCI US Investable Market Real Estate 25/50 Index. The index invests in REIT stocks focused on office buildings, hotels, and other real estate properties. VNQ has an expense ratio of 0.13%, lower than the sector average of 1.07%.
Importantly, VNQ boasts an attractive dividend yield of 3.96%, which is the highest among the three ETFs discussed here. VNQ paid total dividends of $3.56 per share in the past year.
VNQ is also the largest REITs-focused ETF, with an AUM of $33.49 billion as of July 15. The ETF has 160 holdings in its portfolio, with the top three holdings, mutual fund-Vanguard Real Estate II Index Fund Institutional Plus Shares (VRTPX), Prologis (PLD), and American Tower Corporation (AMT), contributing 25.8%.
Is VNQ a Buy, Sell, or Hold?
On TipRanks, VNQ has a Moderate Buy consensus rating based on 96 Buys, 56 Holds, and eight Sell recommendations. It is worth noting that the ETF ratings and price targets are based on the consolidated ratings and price targets of each stock in the fund. Also, the average Vanguard Real Estate ETF price target of $92.08 implies 2.6% upside potential from current levels.
SPDR Dow Jones REIT ETF (RWR)
The SPDR Dow Jones REIT ETF seeks to track the performance of the Dow Jones U.S. Select REIT Index, a market cap-weighted index that invests in REITs that own and operate commercial and/or residential real estate. Importantly, RWR carries the second-highest dividend yield of 3.56%. It paid a quarterly dividend of $0.90 per share in June.
At the same time, RWR has the highest expense ratio of 0.25% among the three ETFs and also the smallest AUM of $1.46 billion. As of July 12, RWR had 104 holdings, with the top three being Prologis, Equinix (EQIX), and Welltower (WELL). The three represent 23.8% of the total portfolio.
Is RWR a Good Investment?
With 71 Buys, 27 Holds, and six Sell ratings, RWR ETF has a Moderate Buy consensus rating on TipRanks. The average SPDR Dow Jones REIT ETF price target of $100.65 implies 1.7% upside potential from current levels.
Real Estate Select Sector SPDR Fund (XLRE)
The Real Estate Select Sector SPDR Fund seeks to track the investment results of the Real Estate Select Sector Index, which in turn provides exposure to real estate management and development companies and REITs, excluding mortgage REITs. Remarkably, XLRE has the lowest expense ratio of 0.09% among the three ETFs.
However, it offers the lowest dividend yield of 3.33% among the three ETFs. XLRE paid a quarterly dividend of $0.39 per share in June.
As of July 12, XLRE had an AUM of $6.25 billion with 33 holdings in its portfolio. The top three stocks are Prologis, American Tower Corp., and Equinix, contributing 27.8% of the total holdings.
Is XLRE a Good Investment?
Based on 28 Buys versus five Hold ratings, XLRE has a Moderate Buy consensus rating on TipRanks. The average Real Estate Select Sector SPDR Fund price target of $42.50 implies 3.9% upside potential from current levels.
Ending Thoughts
The Vanguard Real Estate ETF appears to be the best pick among the three ETFs based on its higher dividend yield. VNQ also has a larger asset base and a moderate expense ratio, making it an attractive option.
