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Why Energy and Real Estate ETFs are most suitable for dividend hunters

Why are Energy and Real Estate ETFs most suitable for dividend hunters
Jordan
Major
2 months ago
5 mins read

A dividend exchange-traded fund (ETF) is an investment instrument that owns shares of dividend-paying businesses. These companies distribute earnings to their shareholders on a quarterly, six-month, or annual basis, either in cash or shares.

There are currently 134 dividend ETFs on the market, as per Morningstar, making it more critical than ever to know what you’re investing in. For example, two ETFs may have the same current yield, but you may prefer a fund whose dividends have risen quicker in the past.

The dividend yield is a measure of the number of dividends. For example, in the past 12 months, dividends were paid out as a percentage of the purchase price. In other words, if a $50 ETF pays out $5 in dividends, then it has a 10% yield.

According to ETFdb.com, Energy and Real Estate ETFs deliver the highest dividend return for the investor as of August 2021; Energy ETFs have an average dividend yield of 3.18%, whereas Real Estate ETFs have 2.67%, respectively. Hence, these ETF sectors should be on the radar of dividend investors.

Rankings of the top ETF sectors that have the highest dividend yield: Source. Etfdb.com

Since March, dividend stock underperformance has been a dominant trend. At this point, concerns about the economic recovery began to surface, and investors began to steer clear.

Despite the general underperformance of dividend companies in the market, Energy and Real Estate ETFs continue to provide strong dividends and interest returns to their investors.

Real estate ETFs

In comparison to other investment choices, real estate exchange-traded funds contain baskets of securities from the real estate sector. When investing in these and other REITs, investors are able to reap the benefits of dividends. 

REITs are a type of securitized property portfolio, and these funds frequently specialize in them. An investment in REITs provides investors with both income potential and liquidity comparable to traditional equities. 

Furthermore, REITs own stock in firms that acquire or lend money to income-producing real estate. By law, REITs must distribute 90% of their profits to shareholders, making them a favorite choice for investors seeking high dividends.

Real Estate ETFs average ROI 45%

Our previous research shows that between January 1, 2021, and June 2, 2021, the three best-performing real estate ETFs had an average return on investment of 45.69%. In the United States, the top-performing real estate ETF is Direxion Daily Real EstateBull (DRN), which invests in public stock markets.

With a return of 40.48%, ProShares Ultra RealEstate (URE) comes in second, while Credit Suisse X-LinksMonthly Pay 2xLeveragedMortgage REIT ETN (REML) comes in third with 29.20%.

Multiple Real estate investment trusts (REIT-themed) ETFs saw positive gains in July, making real estate one of the best-performing sectors in the market. One such ETF that targets high yielders in the REIT sector is ALPS REIT Dividend Dogs ETF(NYSE: RDOG).

RDOG is now trading near its 52-week high, which is a positive indication. This performance is in line with the market since the S&P 500 Index is likewise trading around new highs.

 RDOG 20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

RDOG beats all other companies by 67 percent on an annual basis, which aligns with the overall market.

In the second quarter of 2021, ALPS REIT announced a dividend of $0.4729.

Energy ETFs

The Senate recently voted to approve the infrastructure package, which contains $550 billion in additional funding for initiatives such as transitioning the country to reliance on sustainable energy.

As MKM Partners’ head market technician JC O’Hara stated, “follow the money” by investing in the regions where the most money is allocated.

Energy and conventional energy equities managed to remain stable without many losses, according to an August 15th Bloomberg report. Instead of deteriorating, they’ve managed to be among the best-performing companies in 2021 thus far. 

Energy stocks have dominated the S&P 500 since 2021 began, and August has shown that even if the globe continues to gravitate towards green energy due to climate change worries, traditional energy will still be attractive to investors because of the returns and profits provides.

For example, First Trust Natural Gas ETF (NYSEARCA: FCG) is up to $3.46 (38.62%) year to date on the return of interest and has an annual dividend yield: 2.12%.

FCG 20-50-200 SMA lines chart. Source. Finviz.com data. See more stocks here.

FCG outperformed 75% of all other stocks on an annual basis. Meanwhile, most ETFs in the energy sector invest in natural gas, oil, and alternative energy businesses. As an alternative to investing in a single energy firm, ETFs provide diversity throughout the whole sector. 

Electric cars, solar power, and wind power firms may see sales and profitability increase if the Biden administration’s climate and energy policies are successful.

In the end, dividend ETFs may appeal to some investors, such as those who are more cautious with their money or are more interested in income flow for their retirement years than others. To optimize their overall returns, aggressive investors should use smaller growth stock funds, which have a more significant chance of achieving capital gains.

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Jordan Major
Author

Jordan is an investor and market analyst. He's passionate about stocks, ETFs, blockchain, and digital assets. At Finbold.com, he delves into the technicalities to obtain future trends for new market traders and gives insights into user-friendly platforms for beginners.

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