Dividends paid by real estate investment trusts (REITs) were under siege earlier this year, but analysts believe the worst is behind the group and that could pave the way for a second-half rally for ETFs, including the ALPS REIT Dividend Dogs ETF (RDOG).
RDOG tracks the S-Network REIT Dividend Dogs Index, a benchmark that’s similar to those found on ALPS’ other dividend dogs ETFs.
“Real-estate investment trust dividends, down about 20% since the pandemic took hold in the U.S., appear to have bottomed,” reports Lawrence Strauss for Barron’s.
The broader REIT universe yields about 3.5%, which JPMorgan recently said is sustainable.
As an equal-weight ETF, RDOG is under-weight some of the REIT segments that were drubbed earlier this year and those that were home to a spate of negative dividend action. Likewise, the fund is overweight some of the fast-growing REIT industries that are performing well and not slashing dividends. Think data center and industrial REITs.
“For example, the stated annualized dividend distributions for hotel/lodging REITs are down 99%, according to the report. Also hit hard are strip-center REITs dividends, down 63%, and mall REITs, off nearly 50%,” according to Barron’s.
RDOG also has a layer of payout protection not found in rival REIT ETFs as the fund requires member firms to have Trailing Twelve Month (TTM) Funds From Operations per share (FFOPS) that exceed TTM Dividend Payouts per share (DPS). That’s an important trait when considering the rough payout environment endured by REITs in the first half of 2020.
“Overall, REITs have had 36 dividend suspensions and 26 cuts since the onset of the pandemic, according to the report. There have been 23 dividend increases since Feb. 14,” reports Barron’s.
Another highlight is RDOG’s 11.38% weight to industrial REITs, the fund’s third-largest industry exposure. While some analysts are speculating that industrial REITs could be confounded by weakening consumer confidence on par with retail ETFs, other data points suggest RDOG is positioned to endure retail weakness. In fact, thanks to the e-commerce boom, the ETF is poised to thrive as shoppers move online. Conversely, retail REITs – a source of weakness in the sector – are the ETF’s smallest industry exposure.