Finally, This REIT ETF Could Be the Best Buy of 2024

This ETF is finally looking up, with enormous returns already in 2024. And a high dividend yield that should only add to its attractiveness.

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If you’re like me, you likely grew up learning how if there was one area you could safely invest in, it’s real estate. Real estate is an investment! It’s a physical piece of property that will continue to climb higher with little risk of downside, especially with interest rates around 2%.

Well, after sinking cash into your investment portfolios and focusing on real estate investment trusts (REITs), this theory was put to the test. After all, we saw real estate and REITs alike surge during the pandemic.

However, inflation and interest rates also rose, and this caused some of the highest interest rates in decades for those seeking mortgages. Enter a fall in housing and REITs that we haven’t seen since the Great Recession.

Yet now, REITs are looking great once more. The interest rate has finally been cut for the first time in four years, coming down to 4.75%. Furthermore, this is likely to happen again and again throughout the next year. This is why there is one REIT I would now consider above the rest.

ZRE ETF

If you’re looking for a solid REIT, I actually wouldn’t focus on one in particular. Instead, look for an exchange-traded fund (ETF) — one that is likely to bring in even higher cash flows. This is why today we’re looking at one that’s already done just that.

BMO Equal Weights REITs Index ETF (TSX:ZRE) has been climbing higher after the Bank of Canada cut interest rates last week. Therefore, investing in ZRE ETF on the TSX can be a strong move as the Bank of Canada begins to lower interest rates. So, let’s go over a few of those reasons today.

The impact 

Historically, REITs tend to perform well when interest rates fall. Lower interest rates reduce the cost of borrowing, which can boost property investments and development projects. This can lead to higher property values and increased rental income, benefiting REITs and, by extension, REIT ETFs like ZRE.

The Bank of Canada’s recent decision to cut interest rates suggests a favourable environment for REITs as borrowing becomes cheaper, stimulating growth in the real estate sector. The broader economic outlook also supports investing in ZRE. 

The easing of monetary policy is expected to support economic growth, which, in turn, can drive demand for real estate. As the economy strengthens, occupancy rates and rental income for REITs are likely to improve, further enhancing the performance of REIT ETFs. Analysts predict that a softer economic landing with controlled inflation could sustain the attractiveness of risk assets like REITs.

Diversity and consistency 

ZRE ETF has shown solid historical performance, returning about 180% since its inception. This translates to an average annual return of approximately 8.3%. Additionally, ZRE offers a competitive distribution yield of 5.48%, which is paid out monthly. This high yield can provide a steady income stream for investors, which is particularly attractive in a low-interest-rate environment.

This is supported by its diversification. ZRE is an equal-weighted ETF, meaning it invests equally across all its holdings, reducing exposure to any single REIT. It includes 22 different Canadian REITs, providing broad diversification across various real estate sectors such as retail, residential, and industrial properties. This diversification helps mitigate risks associated with individual REIT performance and sector-specific downturns. 

Compared to other investment vehicles, ZRE has demonstrated reliable returns with low volatility. This consistency makes it a suitable option for investors seeking stable growth and income. Moreover, the equal-weight approach of ZRE ensures that the ETF does not overly rely on the performance of a few large REITs, promoting steadier returns across different market conditions. So, when it comes to reliable income, you can certainly go with real estate these days! But ZRE ETF is probably the best option out there.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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