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We continue to look for stock ideas that provide stability and income to help offset the pressure of low interest rates. Recently, Dan Caplinger of the Motley Fool noted that real estate investment trusts have become a popular income-oriented investment. As there is increasing focus on dividends, it is likely that a number of companies are looking at the hoops through which they would have to jump to qualify to be a REIT.

Dan then looks a three companies that have completed this step.

Looking back at REIT conversions

  • Forest-products supplier Weyerhaeuser (WY)
  • Plum Creek Timber (PCL)
  • Sabra Health Care (SBRA)
  • American Tower (AMT) -- mobile-transmission tower company

I thought that I would put these together and see whether the combination of different market segments would provide both income and diversification. Note that I will combine WY and PCL as they are in the same space -- i.e. they will have 1/6 of the investment each.

I hope this will be an interesting selection and worthy of comparison with our broadly diversified dividend bearing ETF portfolio. It will be interesting to see how they compare with our reference dividend bearing ETF portfolio.

AssetFund in this portfolio
REAL ESTATE(ICF) iShares Cohen & Steers Realty Majors
FIXED INCOME(TIP) iShares Barclays TIPS Bond
Emerging Market(VWO) Vanguard Emerging Markets Stock ETF
US EQUITY(DVY) iShares Dow Jones Select Dividend Index
US EQUITY(VIG) Vanguard Dividend Appreciation ETF
INTERNATIONAL EQUITY(IDV) iShares Dow Jones Intl Select Div Idx
High Yield Bond(HYG) iShares iBoxx $ High Yield Corporate Bd
INTERNATIONAL BONDS(EMB) iShares JPMorgan USD Emerg Markets Bond

Portfolio Performance Comparison

Portfolio/Fund NameYTD
1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
Retirement Income ETFs Tactical Asset Allocation Moderate2%6%66%12%110%7%57%
Retirement Income ETFs Strategic Asset Allocation Moderate2%-1%-3%10%95%1%4%
REIT Stocks Could Deliver Strong Dividends8%5%21%11%52%-1%-6%

I think it is worth having access to real estate trusts -- I have Vanguard REIT Index ETF (VNQ) and SPDR Dow Jones REIT (RWR) which I use as a comparison. In my view, the ETFs win out in terms of returns and volatility. It's hard for me to see a reason to go with this selection over having an ETF unless you have some detailed knowledge which I don't.

Three Month Chart

One Year Chart

Three Year Chart

Five Year Chart

The charts tell me the same thing. I am happy with my ETF selection and so this is of no further interest.

More analysis...

Source: REIT Stocks Could Deliver Strong Dividends

Additional disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.