REITS ARE GOOD DIVIDEND PLAY AND THE YEAR'S STRONGEST GROUP -- REIT LEADERS ARE EQUITY RESIDENTIAL, SIMON PROPERTY, AND VORNADO --
DIVIDEND ISHARES HIT NEW HIGH... My September 28 message headlined: "Low Bond Yields Continue to Benefit Dividend-Paying Stocks" showed the DJ Dividend iShares outperforming the S&P 500 since April. That stronger trend continues. Chart 1 shows the DJ Dividend iShares (DVY) trading well above its April high. The S&P 500 (gray line) has yet to do that. The DVY:SPX relative strength ratio (below chart) turned up during April which coincided with a peak in bond yields (bottom green line). The four main groups contributing most to the DVY uptrend are consumer staples, healthcare, telecom, and utilities. One dividend-paying group that isn't included in the DVY, but that shouldn't be forgotten, is Real Estate Investment Trusts (REITs). REITS pass most of their profits to stockholders in the form of dividends. And the group is doing very well at the moment.
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Chart 1
REITS ARE TOP 2010 PERFORMER... In fact, REITs have been the year's top performer and have done better than other high-yielding stocks. Chart 2 shows REIT iShares (blue line) gaining 28% for the year compared to 13% for Dividend iShares (red line) and nearly 6% for the S&P 500. The three top performers since April when bond yields peaked are REITS (17%), telecom (15%), and utilities (10%). That certainly suggests that investors are looking for higher yields in dividend paying groups. The fact that those groups are defensive in nature also offers some protection from fears of a "double dip" recession and a weaker stock market.
Chart 2
REIT LEADERS ... You may be surprised at just how well some of the bigger REITs have done. Chart 3 shows Equity Residential Properties exceeding its 2007 peak. Chart 4 shows Simon Property nearing a test of its 2007 high. Chart 5 shows Vornado Realty having broken a three-year down trendlne. The three shown here also happen to be the three biggests holdings in the Cohen & Steers REIT ETF shown in Chart 2. If you're not a stick picker, and you want a piece of the REIT rally, one of the REIT ETFS like the ICF is the simplest way to do that.
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Chart 3
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Chart 4
