Friday, March 25, 2011

Why I like DRW. A personal fave.


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This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.


What happened? I found this explanation on the Net:


"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "


I'm holding my position. I'm not overexposed and feel little concern. We'll wait to see what the yield is delivered at the end of the first quarter of 2012 and we'll hope the value of this ETF doesn't continue to lose ground. This missed dividend payment does add a whole new wrinkle to owning DRW.
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When ETFs based on International REITs suffered staggering losses in 2008, I lost almost 60 percent of my investment in DRW.

That loss is why I like DRW today.

Since that time International REITs have enjoyed a decent comeback. Some have called their climb in value dramatic, but as I'm still down on this investment, I call the returning value decent, maybe even solid, but certainly not dramatic.

And that is another reason why I like DRW today.

A number of very famous retirement fund managers have said that REITs are a big part of their approach to running a solid retirement fund. The dividend flow, and the positive edge imparted by the real estate connection, are among the reasons for their enthusiasm. If the folk famous for success speak highly of REITs, who am I to disagree.

For Canadians the obvious ETF REIT play is XRE from iShares. It's the lazy investor's way to play the REIT game in Canada. If you've got the money you could easily buy a lot of the composition of XRE directly and cut out the middleman. Another lazy approach for Canadians is to buy ZRE, the Bank of Montreal equal weighted REIT-based ETF.

Owning one or both of the above takes care of one's investment in Canadian REITs. Adding an ETF like DRW delivers the following benefits.


  • DRW offers international diversification and diversification is one of my core goals. The more the merrier.
  • DRW, like all REITs, offers a hedge against inflation.


So, why DRW? Well, as this chart from Seeking Alpha shows, it is among the leaders in the sector at the moment.


As this chart from my TD Web Broker connection shows, DRW is rated "Average Risk." Being retired, average risk in the most risk that I like to confront.


Also note, the daily sales volume. It is 34.6 K. This, and the total net assets, is enough to keep DRW from appearing on the ETF Deathwatch list.

Lastly, let's look at this chart from my TD Web Broker connection.


Check the Dividend per Share: $2.68 annually for a yield of 9.22%.

Conclusion:

The way I have it figured, and I admit I could be wrong, DRW does not have a fierce downside at the moment, as it has not fully recovered from the beating endured during the recent recession. If it does get smacked down again, it's yield can be be slashed and it may still deliver the 4 percent yield I look for from my investments.

I presently own 500 shares of DRW and expect to see an annual cash yield of more than $1200.

I am presently letting my dividends accumulate in anticipation of a possible correction. If a 10 percent correction hits, DRW will be on my short list of investments.

To round out this post, let me say I also own some VNQ, the Vanguard REIT Index VIPERS ETF. This is rated a 3*** ETF by Morningstar with above average risk. I don't own a lot of VNQ but I do have some. I like the Vanguard name and I wanted the diversity offered by this ETF, almost 100% pure U.S. play.

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