Total Return

Key Takeaways

• Total return measures both the income and price appreciation of an investment over a specified period.
• It accounts for capital gains, dividends, and any distributions received, and is expressed as a percentage of the investment's value at the beginning of the measurement period.
• Total return provides a more complete view of performance than price return alone.

What is total return?

Total return is the overall gain or loss on an investment over a specified period, including both capital appreciation and income from dividends or interest. It is expressed as a percentage of the initial investment value.

Why is total return more accurate than price return for REITs?

Total return is a more complete measure than price return for dividend-paying stocks like REITs because it captures both capital appreciation and dividend income. This distinction is particularly important for REITs, which are legally required to distribute at least 90% of taxable income as dividends— meaning dividends often represent a substantial portion of an investor's total return.

Price return tracks only changes in share price, ignoring cash paid out to investors, and can significantly understate performance for high-yielding assets like REITs. Total return incorporates dividend income alongside price appreciation, providing a more accurate picture of the wealth an investment has generated over time. Some total return calculations also assume dividends are reinvested, which compounds returns further.

Example of total return

Assume an investor purchases shares in a REIT at $50 per share. Over the course of a year, the REIT pays dividends totaling $2 per share and the share price appreciates to $55.

• Dividend income: $2 per share
• Capital gain: $5 per share
• Initial investment: $50 per share

Total return = ($2 + $5) / $50 = 14%