SRET: Value REITs Offer Higher Returns With Similar Risk Profile To Most REITs

Summary

• SRET is a global dividend-focused REIT ETF that currently boasts a 7.75% yield.
• Despite its higher returns, SRET has had about the same volatility and drawdowns as most other REIT ETFs.
• Because the fund's underlying holdings have slightly higher debt ratios, a major rise to mortgage rates could be a risk.
• The macroeconomic backdrop for REITs remains stellar and portends late-cycle to recession outperformance.

The hunt for dividends remains strong among investors today. Yields are low and the need for income-based returns is high. Most funds that offer 5%+ returns come with excessive risk, particularly when it comes to the (bubblish) bond market.

Even most equities that pay such high dividends are looking risky and some have dividend coverage ratios below one (meaning their dividends are not coming from profits). There are a few areas where it seems dividends are high without compromising stability. One of which is equity and mortgage REITs.

The Global X SuperDividend REIT ETF (NASDAQ:SRET) is a fund that invests in the highest-yielding global REITs. The fund currently pays a very high 7.75% yield monthly and has slightly outperformed other REIT ETFs since inception. The fund's global focus allows for better diversification, though the vast majority of its holdings are U.S. based.

While SRET has delivered an average annualized return of about 9% since inception, it is no free lunch. Its holdings generally have slightly higher debt levels than they're lower-yielding peers. In my opinion, a recession will have less of a negative impact on these REITs than the last since it owns generally cheap properties and real estate is historically inexpensive, but a major tightening in credit conditions could threaten dividends.

Overall, SRET looks like a solid bet today as it offers higher returns than most REIT ETFs with only slightly higher risk.

Comparative Performance of SRET's Strategy

SRET's strategy is very simple, buy the 30 high dividend REITs that have an adequate liquidity profile. Importantly, this strategy does not exclude mortgage REITs which usually pay higher yields, so a significant portion of the fund is in the mREIT sector. Many investors today are scared of mREITs (due to their mass-bankruptcy 12 years ago), but they're actually perhaps one of the most undervalued asset classes today

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.