REITs’ reliable income returns have been one of the chief drivers in the industry’s performance. In 2011, for example, REITs paid investors approximately $22 billion in dividends.
By law, U.S. REITs are required to pay out at least 90 percent of taxable income to their shareholders in the form of dividends. Most REITs, however, opt to pay out 100 percent or more. Consequently, REITs tend to generate a stable and consistent income stream for investors.
Data on average annual total returns from 1972 through 2012 illustrate the benefit of REITs’ steady income returns. While REIT stocks have exhibited clear potential for strong price appreciation, price returns can fluctuate from year to year. In contrast, REITs have yielded a consistent annual income component of 8.09 percent during that period, representing approximately 60 percent of the industry’s average annual total return of approximately 13.72 percent.
REITs’ steady dividends suggest that the securities are “inflation-proof” investments. A comparison of data from NAREIT and the Bureau of Labor Statistics reveals that, since 1992, annual REIT dividend growth has exceeded inflation as measured by the Consumer Price Index (CPI) every year except 2002 and 2009.
This attribute of REITs’ investment performance takes on special significance for income-oriented investors, such as retirees, because a steady income source prevents the erosion of purchasing power. So long as these investors can bring in enough income from their investments to offset inflation, it ensures that they will be able to purchase the same amount of goods or services in the future as they can today.