Do REITs Pay Dividends? Yes, and There’s a Good Reason Why (2024)

Do REITs pay dividends? REITs, also known as real estate investment trusts, do make dividend payments to investors. In fact, due to its nature, a REIT must pay at least 90% of taxable income to qualifying holders.

What exactly is a REIT, though? A REIT invests in real estate like commercial properties and provides ownership to investors who want the benefits of owning property but also want to avoid the potential hassles associated with owning real estate.

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The Benefits of REITs Investing

A REIT often provides diversification to a portfolio that can help manage risk. REITs frequently invest in commercial real estate, offering investors the ability to hold real estate investments without owning the property itself. Unlike buying residential real estate, which requires more hands-on maintenance and upkeep, REITs are hands-off for investors.

Is There a Difference Between REIT Dividends and Stock Dividends?

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. There is a difference between the dividends paid by stocks and REITs though.

REITs are in a better tax situation relative to stocks because stocks are taxed twice. First at the corporate level and then again at the individual level. REITs are tax-advantaged at a corporate level, which can allow them to offer higher yields than many equity investments.

Common Types of REITs

There are a few different types of REITs that investors can buy. Here is a brief look at each type of REIT. It is important to remember that a strong balance sheet and low amounts of short-term debt are worthy components of any REIT investment, regardless of its type.

Healthcare REITs: Healthcare costs are rising and people are living longer, making healthcare REITs more attractive to many American investors. These REITs hold real estate in hospitals, medical centers, and nursing homes. The greater the demand for healthcare, the better positioned these REITs will be in the market.

Mortgage REITs: A small subset of REITs focus on mortgages instead of real estate. These tend to perform better when rates are predictable.

Office REITs: Office buildings with long-term lease agreements are the primary focus of these REITs. The best mortgage REITs invest in geographical locations with strong, growing economies.

Residential REITs: These REITs primarily invest in multi-family rental properties and manufactured housing. It is worth considering the area where the residential property is located before investing in residential REITs. It is best to target geographical locations that have a strong job market, a growing population, and a housing market where supply is low and the demand is high.

Retail Property REITs: These REITs are popular among investors and nearly a quarter of all REIT investments involve retail properties. Shopping malls, grocery stores, and home improvement stores are common types of assets for these REITs to invest in.

The right REITs can offer the income potential of investing in real property without the hassle of managing that property, and they’re especially popular for income investors.

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*This post is periodically updated to reflect market conditions.

Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with MoneyShow.com for many years as an editor and interviewer for their on-site video studios.

Do REITs Pay Dividends? Yes, and There’s a Good Reason Why (2024)

FAQs

Do REITs Pay Dividends? Yes, and There’s a Good Reason Why? ›

REITs, also known as real estate investment trusts, do make dividend payments to investors. In fact, due to its nature, a REIT must pay at least 90% of taxable income to qualifying holders.

Do REIT pay dividends? ›

Real estate investment trusts (REITs) have long been a popular investment option for those looking for steady income streams. These trusts are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them a great choice for investors seeking regular cash flow.

What is positive about REITs? ›

A REIT offers investors the ability to allocate their funds into multiple real estate assets, spread out geographically and diversified by type of tenant. While assets within the REIT can fluctuate in value, it isn't common for all assets to be adversely affected simultaneously.

What is the reason that REITs often offer such an attractive dividend stream? ›

REITs dividends are substantial because they are required to distribute at least 90 percent of their taxable income to their shareholders annually. Their dividends are fueled by the stable stream of contractual rents paid by the tenants of their properties.

Why do REITs pay 90% dividends? ›

Yet, some REITs like Realty Income Corp (O ) do, in fact, follow the 90% rule because it provides other benefits. In general, REITs do not pay taxes at the trust level insofar as they distribute 90% of their income to shareholders. Of course, REITs that follow this rule still pay corporate taxes on any retained income.

Are REIT dividends safe? ›

However, investors shouldn't be swayed by large dividend payments alone. REITs come with risks and investors should research management teams and properties based on current trends, and whether the REIT is publicly traded or non-traded.

Which REIT pays the best dividend? ›

8 Best High-Yield REITs to Buy
REITForward dividend yield
Realty Income Corp. (O)5.6%
Omega Healthcare Investors Inc. (OHI)8.7%
Community Healthcare Trust Inc. (CHCT)7.8%
AGNC Investment Corp. (AGNC)14.7%
4 more rows
5 days ago

What is the downside of REITs? ›

Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.

Is a REIT good or bad? ›

Dividend Taxes

REIT dividends can be a great source of passive income, but the money you receive is subject to your ordinary income tax rate, which will depend on your tax bracket. And because dividends are paid out regularly, you'll have to pay taxes on the income each year, even if you reinvest your dividends.

What I wish I knew before buying REITs? ›

REITs must prioritize short-term income for investors

In exchange for more ongoing income, REITs have less to invest for future returns than a growth mutual fund or stock. “REITs are better for short-term cash flow and income versus long-term upside,” says Stivers.

Why do REITs pay dividends? ›

It is beneficial for a company to become a REIT as it results in no income tax obligations on the corporate level. Instead, these taxes are passed on to the individual investors. In return, these companies distribute at least 90% of earnings to shareholders in the form of dividends, resulting in very high yields.

Why do REITs do well in inflation? ›

REITs provide natural protection against inflation. Real estate rents and values tend to increase when prices do. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.

What are the pros and cons to REITs? ›

The benefits of a REIT investment include liquidity, diversification, and passive income in the form of high dividends. The potential downsides of a REIT investment include taxes, fees, and market volatility due to interest rate movements or trends in the real estate market.

How often does a REIT pay out? ›

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. There is a difference between the dividends paid by stocks and REITs though.

Can REITs pass through losses? ›

Finally, a REIT is not a pass-through entity. This means that, unlike a partnership, a REIT cannot pass any tax losses through to its investors. Consider consulting your tax adviser before investing in REITs. The Office of Investor Education and Advocacy has provided this information as a service to investors.

Why are REITs good for retirement? ›

There are several benefits of adding a REIT to your retirement portfolio. They can provide income, capital appreciation, diversification, inflation protection and could be considered passive investments – meaning you don't need to manage tenants or collect rent from realizing returns on your investment.

How often do REITs pay dividends? ›

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. There is a difference between the dividends paid by stocks and REITs though.

What is the 90% rule for REITs? ›

To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

What is the average dividend return for a REIT? ›

As of Dec. 12, 2023 publicly traded U.S. equity REITs posted a one-year average dividend yield of 4.09 percent. The health care REIT sector recorded the highest one-year average dividend yield among this group, at 5.07 percent, outperforming the broader Dow Jones Equity All REIT Index by 0.98 percentage points.

Do REIT dividends get taxed? ›

By default, all dividends distributed by a REIT are considered ordinary, or non-qualified, and are taxed as ordinary income. REIT dividends can be qualified if they meet certain IRS requirements.

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