REIT ETF vs O?

[navyasw02]

I'm currently sitting in a REIT ETF (SCHH) and I like being diversified and the extremely low expense ratio, but I feel the dividend is a bit muted. I'm thinking about switching from that to something else, maybe O? The only other REIT I have is HCP. SCHH has been tracking pretty closely with O, but O has a higher dividend. Think it's worth ditching diversity for greater dividends? Is there anything else that you'd recommend? Thanks for the help

[Kerim]

It is hard to argue with the diversification you get there, and the expense ratio is nice and low, but I agree, it is very hard to get excited about a yield of just over 3 percent for your REIT holdings. That sort of yield is available with consumer staples without the interest rate risk. Of course it depends a lot on your particular circumstances (type of account, tax implications, balance of portfolio), but (like you) I would be very tempted to choose a handful of top-flight REITs with better yields than that instead.

I hold O and HCP, so agree with those choices. The others on my watch list as high-quality REITs are: HCN, HTA, NNN, OHI, VTR, and WPC. I am absolutely sure that other folks have more to add to that list!

[hendi_alex]

Here is one approach that I like. Start the sector exposure via an acceptable ETF. Then, begin DD on the individual holdings in the ETF. Finally, begin to enrich the weighting of favorites by buying those individually. One can end up having more diversity than with purely individual picks, but can also alter the weighting of holdings with the addition of just a limited number of additional positions. The one thing that I like least about ETFs is that so many of them are market cap weighted to the extent that the top five holdings represent extremely high weightings compared to those of the smaller cap companies.

Of course the approach that I usually like best is what might be called the 'small basket' approach. Cherry pick 4-5 tickers from the sector of interest. Five tickers gives adequate diversity yet also gives one the freedom of making his/her own picks. That is where I'm am with REITs. Holdings include: CSG HCP O SNH. Perhaps will eventually add one more ticker to the group.