Founded by investing legend John Bogle, “the father of index investing”, Vanguard has become the second largest asset manager in the financial industry after BlackRock.
Investing $50,000 in These 3 High-Yield Vanguard ETFs Can Generate Nearly $2,000 of Passive Income Every Year
There are some excellent exchange-traded funds (ETFs) for dividend investors, and there's a solid case to be made for some high-dividend ETFs, dividend growth ETFs, and other types. But when it comes to my top dividend ETF to buy in 2025 as a long-term investment, the Vanguard Real Estate ETF (VNQ 0.34%) is the clear winner for me.
Scott Rechler, RXR chairman and CEO, joins 'Squawk on the Street' to discuss where things stand in the commercial real estate industry.
After a tremendous performance in 2021 as the world gradually normalized from the COVID-19 pandemic, the real estate sector has been a major laggard in the years since.
VNQ offers broad, cost-efficient exposure to the real estate sector, including REITs and real estate adjacent companies, making it a valuable investment. The valuation gap between public and private REITs has significantly compressed, but there's still room for an actionable opportunity. A potential economic soft landing, stabilizing interest rates, and limited new supply could positively impact the real estate market in 2025.
2025 is just getting started, but with 2024 ending with some market weakness and higher-than-expected interest rates, there are some interesting opportunities. Investors don't necessarily need to buy individual stocks to take advantage.
The REIT market in 2024 nearly met our forecast, achieving a total return of +8.8% following December's market disruption. While it was a disappointing finish, it does make the setup a bit more attractive for 2025. We forecast a 10% to 15% total return for REITs in 2025, driven by positive sentiment, balance sheet strength, and potential accretive acquisitions.
VNQ offers a 3.84% dividend yield with a 0.13% expense ratio, tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index. VNQ has a P/E ratio of 40x, higher than SPY, due to low EPS growth prospects for 2024 (4.5%) but strong price appreciation. VNQ could follow the correction in Treasury yields due to new expectations for PCE (2.5%) and interest rates (3.75%) in 2025.
In today's relatively high-interest rate environment, it isn't too much of a challenge to get yields of 3%, 4%, or even more on your money. In fact, as of this writing, you can find 4% yields from high-yield savings accounts, CDs, and Treasury securities.
Real Estate has outperformed over the last year, with VNQ delivering a 26% total return, outpacing the tech-heavy S&P 500 and the Dow Jones index. The primary driver for VNQ's performance is the negative correlation with falling interest rates, which the market has already anticipated and priced in. REITs are highly sensitive to interest rates due to their high debt burdens and reliance on tenant occupancy and rent collection, both affected by higher rates.
Investing in an exchange-traded fund (ETF) that can benefit from interest rate cuts can be a great move to make right now, as more cuts look to be on the horizon. According to projections from JPMorgan Chase, there could be another rate cut in December followed by more next year -- it expects one per quarter.