REIT dividends: why yields are higher
A real estate investment trust (REIT) owns or finances property such as apartments, offices, warehouses, towers or healthcare buildings. In the US, a REIT generally has to pay out at least 90% of its taxable income to shareholders each year, which is why REIT yields are often higher than typical stocks.
Why REIT yields look higher
Because most income is paid out rather than kept, REITs have less to reinvest and rely on borrowing and new share sales to grow. A yield well above the stock market average is normal for the group.
Measuring safety: FFO, not earnings
Depreciation on buildings reduces reported earnings but is not a cash cost, so REIT payout ratios are usually measured against funds from operations (FFO) or adjusted FFO instead of net income.
Taxes
Much of a REIT's dividend is usually taxed as ordinary income rather than as a qualified dividend, although parts can be classified differently, and some US investors may be eligible for a deduction. The yearly tax form shows the breakdown.
- Interest rates matter: rising rates can pressure REIT prices and borrowing costs.
- Property type matters: warehouses, offices and retail can behave very differently.
- Many REITs pay monthly or quarterly, which a dividend calendar makes easy to follow.
Frequently asked questions
Why do REITs pay such high dividends?
US REITs generally must distribute at least 90% of their taxable income to shareholders, so most income is paid out as dividends.
Are REIT dividends qualified?
Usually most are taxed as ordinary income, though portions can be classified differently. Your tax form shows the exact split.
Keep reading
- Qualified vs ordinary dividends (US tax basics)
- Payout ratio and dividend safety
- Weekly, monthly or quarterly: dividend payment frequency
General education only, not investment, tax or legal advice. Rules can differ by country and security.