Dividend Stocks Showdown: REITs vs. Utilities

This year has proven to be a rough one for dividend stocks. With the Fed’s rate hike looming and with bond yields rocketing higher, traditionally high-yielding sectors like REITs and utilities have taken an absolute pounding. The REIT sector, as represented by the Vanguard REIT ETF (VNQ), is down 13% from its January highs and is well into negative territory for the year. Many REITs are down more than 20%, putting them into outright bear market territory. Utilities have actually fared a little worse. The Utilities Select SPDR ETF (XLU) is down 14% from its January highs. And, as with REITs, many individual utility stocks are down significantly more.

At current prices, VNQ yields 3.9%, beating out XLU’s 3.6%. But it’s only fair to note that both sectors out-yield Treasuries by a decent margin. As of this writing, the 10-year Treasury yielded a pitiful 3.3%. Utilities have seen decent enough dividend growth, and a utility stock is still a better option than a bond in my view. But REITs have clearly beaten the pants off of utilities in terms of dividend growth, and I expect that to continue going forward. In this dividend stock showdown, REITs are the hand-down winner. They beat utilities in terms of both current yield and dividend growth, and they face none of the complicated macro issues that utilities face.

Source: InvestorPlace

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