Look For Utilities and REITs To Continue To Outperform – Part 2

Two months ago, I posted

Look For Utilities and REITs To Continue To Outperform

During economic troubled times, Smart Money rotates into Utilities and REITs because they act like bonds, meaning the stock dividends are equivalent to coupon rates, the yield paid by a fixed-income security.  However, let me expand on this a bit more.  Utilities and REITs are usually drowning in debt, but during economic troubled times, interest rates go down, so debt obligations put less of a strain on cash flow and  more cash flow means consistent payouts of dividends.  However, let me expand no this a bit more.  Investors are looking for a return on their capital.

As of June 2019, the dividend yield for the S&P 500 was 1.85%. This is below the historical average of 4.41% and close to the all-time low of 1.11% observed in August 2000.

Source

So if investor can get a decent return on their capital from the equity markets, can’t get a decent return on their capital from bonds because interest rates continue to decline, the next best option is dividends.  The barriers of entry are tough in the Utilities and the REITs sector, so with little competition and residual income, dividends are payout out consistently.

Since I wrote that post two months ago, XLU, the SPDR Utilities Sector ETF an the XLRE, the SPDR Real Estate Sector ETF are both up 8%, while the SPY, the S&P 500 ETF is down 2%.

My favorite REIT right now is Innovative Industrial Properties

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but I’m waiting for price to get to the $64 level before I buy.

A REIT worth keeping an eye on is the ETF, the Pacer Benchmark Data & Infrastructure Real Estate (SCTR) which offers investors exposure to U.S. companies that generate the majority of their revenue from real estate operations in the data and infrastructure sector.  Demand for data storage real estate is being driven by cloud, cybersecurity and 5G communication services.  So you know this REIT has a bright future.  

The chart suggests to buy on a pull back at the weekly demand at $29.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

About the author: rolland
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