How much do REIT dividends pay?
The beauty of REITs for income investors is that they are required to distribute 90% of their taxable income to shareholders annually in the form of dividends. In return, REITs typically do not pay corporate taxes. As a result, many of the 200+ REITs we track offer high dividend yields of 5%+.
The beauty of REITs for income investors is that they are required to distribute 90% of their taxable income to shareholders annually in the form of dividends. In return, REITs typically do not pay corporate taxes. As a result, many of the 200+ REITs we track offer high dividend yields of 5%+.
For investors seeking a steady stream of monthly income, real estate investment trusts (REITs) that pay dividends on a monthly basis emerge as a compelling financial strategy. In this article, we unravel two REITs that pay monthly dividends and have yields up to 8%.
TIME PERIOD | S&P 500 (TOTAL ANNUAL RETURN) | FTSE Nareit ALL EQUITY REITS (TOTAL ANNUAL RETURN) |
---|---|---|
Past 20 years | 9.7% | 10.4% |
Past 10 years | 12.0% | 9.5% |
Past 5 years | 15.7% | 10.3% |
Past year (2023) | 26.3% | 11.4% |
REITs' average return
Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs. Invest at least 75% of total assets in real estate or cash.
Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.
While some stocks distribute dividends on a quarterly or annual basis, certain REITs pay quarterly or monthly. That can be an advantage for investors, whether the money is used for enhancing income or for reinvestment, especially since more frequent payments compound faster.
Company (ticker symbol) | Sector | Dividend yield |
---|---|---|
KKR Real Estate Finance Trust (KREF) | Mortgage | 14.0% |
Two Harbors Investment (TWO) | Mortgage | 14.0% |
Ares Commercial Real Estate (ACRE) | Mortgage | 13.8% |
Brandywine Realty Trust (BDN) | Office | 13.6% |
Capital gains earnings: If the REIT you invest in makes its profit from selling real estate property or assets and distributes this as a dividend, it is subject to capital gains tax. Capital gains can be taxed at short- or long-term rates. Short-term gains are taxed as ordinary income.
REITs and stocks can both pay dividends, usually on a monthly, quarterly, or yearly basis. Some investments will also offer special dividends, but they're unpredictable.
How long should I hold a REIT?
"Both public and non-public REIT investments should be considered long-term, and that could mean different things to different folks, but in general, investors who typically invest in REITs look to hold them for a minimum of three years, and some of them could hold them for 10+ years," Jhangiani explained.
While they aren't listed on stock exchanges, non-traded REITs are required to register with the SEC and are subject to more oversight than private REITs. According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
REITs have outperformed the S&P 500 over the long term. A big driver has been the robust returns from self-storage, industrial, and residential REITs. The factors that have enabled those REIT subgroups to deliver strong returns remain in place.
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
So, are REITs the magic shortcut to becoming a millionaire? Not quite. But they can be a powerful tool to build your wealth over time, like a slow and steady rocket taking you towards financial freedom. Remember, the key is to invest wisely, do your research, and choose REITs that match your goals and risk tolerance.
While they aren't listed on stock exchanges, non-traded REITs are required to register with the SEC and are subject to more oversight than private REITs. According to the National Association of Real Estate Investment Trusts (Nareit), non-traded REITs typically require a minimum investment of $1,000 to $2,500.
REITs must prioritize short-term income for investors
“They pay out stable dividends, provided the properties are doing well,“ says Stivers, the financial advisor from Florida. In exchange for more ongoing income, REITs have less to invest for future returns than a growth mutual fund or stock.
REITs historically perform well during and after recessions | Pensions & Investments.
In most cases, REITs utilize a combination of debt and equity to purchase a property. As such, they are more sensitive than other asset classes to changes in interest rates., particularly those that use variable rate debt. When interest rates rise, REITs share prices can be prone to volatility.
Bankruptcies are extremely rare in the REIT sector. After all, REITs are required to keep the bulk of their assets in physical properties, or debt backed by real estate. Most real estate tends to appreciate over time, and as long as it holds its value, a REIT can sell properties to pay down debt in a pinch.
What is the best dividend stock to buy right now?
- Altria. Altria (NYSE: MO) is the maker behind popular cigarette brand Marlboro. ...
- Kenvue. Kenvue (NYSE: KVUE) might not be a stock you recognize. ...
- Coca-Cola. ...
- 3M. ...
- Walmart.
How Do You Make Money on a REIT? Since REITs are required by the IRS to pay out 90% of their taxable income to shareholders, REIT dividends are often much higher than the average stock on the S&P 500. One of the best ways to receive passive income from REITs is through the compounding of these high-yield dividends.
The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec.
How do I Invest in a REIT? An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).
Historically, REITs tend to deliver their highest returns during early stages of the real estate recovery cycle, according to research from Nareit, an association representing the REIT industry. That could spell a strong performance for REITs moving forward.
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