REITs and Income

When people think of REITs, they think “dividends.” REITs are well suited to income investors, due to their strong and reliable dividend payouts that have tended to increase over time.

REITs’ reliable income returns have been one of the chief drivers in the industry’s performance.

Equity REITs own and typically manage properties and generate income by collecting rent from tenants, while mortgage REITs make money by financing income-producing real estate. Because REITs must pass almost all their taxable income to shareholders as dividends under U.S. law, the reliable income streams from real estate have been one of the chief drivers of REIT industry performance.

The high dividend payout requirement means a larger share of REIT investment returns come from dividends when compared with other stocks. REIT dividend yields have historically been a good deal higher than the average yield of the S&P 500 Index.  In fact, over the long-term, about half of REIT total returns have come from dividends, compared to less than one-fourth for the S&P 500.

For long-term retirement savings, dividends do make a difference. For investors with a longer time horizon, dividends can be reinvested to generate future returns, while in later years they can provide a steady income stream to help meet expenses in retirement.

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